MacBank remains on acquisition trail

With at least four deals on the go, the Australian investment bank flexes its balance sheet muscle again in 2006.

Macquarie Bank this week announced a new acquisition for 2006 with its $270 million offer for global airport baggage cart business Smarte Carte - a sign that the bank is preparing for another year of asset purchases.

Other deals in the pipeline include a ₤1.5 billion hostile bid for the London Stock Exchange, the purchase of five chemical plants from Nitrochem Corporation in Canada and rumours that it is part of a consortium bidding for the US aircraft leasing business AWAS.

Macquarie has made a name for itself by using its balance sheet and fund raising capabilities to purchase strategic assets and then offload them into specialist funds - making money on the resulting investment banking activities and then earning management fees on the funds.

In 2005 it bought interests in, among other things, broadcast businesses in the UK, healthcare and aged care assets in Canada, ferries in the Isle of Man, energy and digital cable assets in Korea, and Chinese retail malls. All in all, the bank invested in businesses worth more than A$10 billion, investing either directly or through consortia.

This year, the Smarte Carte and Nitrochem deals are already in the bag. Smarte Carte is the world's largest airport trolley group with concessions at 175 airports (mostly in the US) and nine bus and train stations. It also has electronic locker services in about 500 locations across the US and one of the largest stroller rental businesses in North America.

On Monday this week, Macquarie announced that it would buy the business for $270 million from a group of investors led by Black Diamond Capital Management. The bank has already flagged its intention to include the asset in a new Macquarie-managed fund.

The Nitrochem deal was announced last week and involved the acquisition of three nitric acid plants and two ammonium nitrate plants in Ontario - a deal allegedly worth A$50 million. The plants were bought by Dyno Nobel, the global explosives group which itself was bought by a Macquarie-led consortium last September for A$2.26 billion.

The new Nitrochem assets will be injected into Dyno Nobel ahead of its planned A$1.3 billion stock exchange listing in March this year.

Macquarie is also said to be in discussions over the purchase from Morgan Stanley of the aircraft leasing business AWAS, worth about A$2 billion. AWAS was set up by Ansett Airlines more than 20 years ago but was sold to private equity interests just prior to the airline going bust in 2001.

Of course, one of the biggest acquisitions on Macquarie Bank's radar is the ongoing hostile bid for the London Stock Exchange. Yesterday, the LSE rejected Macquarie's bid for the second time, saying the 580 pence per share price (₤1.5 billion in total) was too low.

The price offered was a 67% premium to the LSE's share price before takeover speculation began in December 2004, but several pence lower than its closing price of 615 pence on Tuesday. Macquarie is making the bid through a takeover vehicle, MLX, and is arguing that the LSE is a fundamentally a low growth business while the owners of the stock exchange have described Macquarie's bids as derisory.

Macquarie needs to get shareholders across the line before February which is the deadline set by the UK Competition Commission for final reports from two other bidders in the race, Deutsche Boerse and Euronext. The watchdog body wants these companies to submit reports on the measures taken to address competition concerns. Deutsche Boerse made an offer of 530 pence per share over a year ago and has indicated that it may make another offer.

Commentators say Macquarie's recent string of acquisitions is putting pressure on its tier-one capital ratio, which gives a crude indication of the bank's risk profile. At the end of September last year this ratio was running at 13% but, say analysts, that figure is probably nearer 11% or 12% now, putting it much closer to Macquarie's stated floor of 10% of risk-weighted assets.

The bank will be working hard to offload some of these newer assets so that it can continue with its strategic vision. The pending IPO of Dyno Nobel will help.