Australian investment bank Macquarie Capital plans to win business from Wall Street banks and smaller boutique shops by focusing on US companies and markets ignored by them. The move will also further diversify Macquarie Capital away from its traditional focus on infrastructure, Tim Bishop, Macquarie US country head, told investors Monday.
“The way we look at the market is on the one hand you have ‘bulge brackets’,” Bishop said, referencing big Wall Street names like Goldman Sachs, Morgan Stanley and JPMorgan. “Generally their obsession is around covering the biggest corporate, the biggest institutions and the biggest financial sponsors.
It's not clear to us there's going to be a boom of public-to-private infrastructure in the US
“At the other hand you have a large number of these boutiques and independent firms,” Bishop continued, referring to a group that usually includes names like Evercore Partners, Greenhill and Houlihan Lokey, among others.
“The opportunity we see is to wedge ourselves in the middle of those two things,” Bishop said, because “there is a significant market that exists just below those bulge bracket firms” that can be better served by Macquarie vis-à-vis its boutique and independent competitors.
“Put yourself in the client’s shoes. They tend to not get a lot of love from these very big banks. And, for us, we’re showing them a lot of love. We have a balance sheet, a balance sheet that’s very well capitalised, and we like to use the balance sheet,” Bishop said. Boutiques and independent firms “tend not to have a balance sheet” and “tend not to be global”, so Bishop believes Macquarie is better placed to serve its target market.
Macquarie Capital: looking to 'wedge' in between US bulge brackets and boutiques.
He described that market as companies that are “still big in Australian terms” but “more mid-market in nature in the US”, such as corporations under $5 billion in size. He said such companies would be the “core focus” of Macquarie in the Americas, where the firm is hoping to win business across a steadily growing number of services.
Those services include sales of equities to institutional clients, corporate advisory, buying and selling commodities, leasing and lending assets to businesses, debt capital underwriting and funds management. Bishop highlighted these as evidence of Macquarie’s effort to diversify its offerings beyond infrastructure-related businesses.
“The reality is we’re not well known in the Americas, or at least in the US,” Bishop said. “Where we are known, it tends to be more infrastructure driven. It’s one of the key things for us to work on during 2011.”
Macquarie’s reputation in infrastructure does not adequately describe its investment banking footprint, Bishop said, because it no longer represents the majority of the firm’s US income. He predicted infrastructure will probably account for around 30 percent of Macquarie Capital’s total advisory income in the US, “which displays the diversity of the business that we’ve been able to build out”.
100 percent market share
Bishop was very pleased with at least one segment of the US investment banking market where he thought Macquarie had a dominant position: public-to-private deal advisory, where the firm teams up with governments and bidders to advise them on asset leases and concessions.
“We have 100 percent market share, albeit it’s a fairly small market at the moment,” Bishop said, eliciting laughter.
He said there were only four public-to-private deals that closed in the US in the last 18 months, but “we have been successful on all four” because Macquarie played an advisory role in each one.
One such deal was Denver’s $2.1 billion Eagle Public-Private Partnership Commuter Rail Project, where Macquarie acted as a financial adviser, sponsor and equity underwriter, according to Bishop’s presentation.
The “100 percent market share” comment prompted a question from an analyst who asked Bishop whether Macquarie sees more opportunity for public-to-private advisory in the US.
“It’s not clear to us there’s going to be a boom of public-to-private infrastructure in the US. Albeit you would think it’s going to go up rather than down. It’s politically very challenging,” Bishop answered.
Bishop’s presentation, “Macquarie in the Americas”, was part of a larger update on Macquarie Group’s business and outlook. Group head Nicholas Moore indicated the firm’s 2011 fiscal year results would be “broadly in line” with its 2010 full-year result, with the second half of the year up 35 percent on the “subdued” first half.
Macquarie Group announces full-year results each May.