Macquarie cements natural resources coverage with acquisition

Australia's Macquarie Group said on Friday that it has entered an agreement to buy Calgary-headquartered global energy advisory firm Tristone Capital Global for up to C$131 million ($120 million) in cash and shares.

The acquisition is intended to enhance Macquarie's energy offering by combining Tristone's energy advisory and capital markets businesses and Macquarie's global resources activities.

Tristone has offices in Canada, the United States, the United Kingdom and Argentina. It provides corporate finance, mergers and acquisitions, equity capital markets, sales, trading and research services exclusively to the global energy sector. Tristone's clients include exploration and production companies, oilfield services and mid-stream companies, government entities, royalty trusts, limited partnerships and institutional investors worldwide.

Tristone's 170 employees will add to Macquarie's 210 dedicated resources and energy sector professionals (not counting Macquarie's ECM team which works across sectors). The combined research efforts of Macquarie and Tristone will cover a universe of around 250 energy-related firms worldwide.

"The combined business gives us an increased presence in vital energy-sector hubs around the world, particularly in Calgary, Houston, Denver and London, and a new Macquarie presence in Buenos Aires," said John Prendiville, global head of resources for Macquarie Capital.

Tristone will be fully integrated into Macquarie after a transition period and its M&A division will be branded Macquarie Tristone.

George Gosbee, chairman, president and chief executive officer of Tristone, termed the merger with Macquarie a "logical evolution of Tristone's business" and went on to say that the deal offers additional opportunities both to Tristone's clients and its staff. Gosbee founded Tristone in 2000 and will now chair Macquarie Capital's energy business in the northern hemisphere.

The deal is expected to close in the third quarter of 2009.

The consideration is split into three parts. An amount of C$57 million, adjusted for the net asset position at financial close, will be paid to Tristone's shareholders in the first tranche.

A further C$59 million will be paid in exchangeable shares issued by a subsidiary of Macquarie. The shares will be held in escrow and released over a five-year period. The final amount is subject to adjustment based on the level of advisory revenues earned by the Tristone business over a two-year period following financial close. The shares are exchangeable on a one-for-one basis for ordinary Macquarie shares subject to certain conditions.

Finally, C$15 million of exchangeable shares and options will be issued to certain Tristone employees who will be joining Macquarie. These shares represent a retention pool and will be released in equal portions at the end of the 3rd, 4th and 5th year after the deal closes, subject to the employees staying with Macquarie.

Macquarie clarified that the number of exchangeable shares to be issued will not exceed four million and any outlay above that amount will be settled in cash.

Sydney-headquartered Macquarie Group was founded four decades ago and currently employs 12,700 people across 26 countries. It opened its first office in Canada in 1998 and now employs more than 420 people in the country with offices in Toronto, Vancouver, Calgary and Montreal. Macquarie's activities in Canada include advisory and capital markets, specialised asset management, lending, financial markets and institutional broking.

Macquarie Group's share price gained 3% on the Australian Securities Exchange on Friday to close at A$31.65 ($25.29).