Macquarie Bank yesterday signed a final sales and purchase agreement to buy ING's Asian cash equity business. The deal is based on adding ING's vaunted distribution platform to Macquarie's undoubted skills in creating innovative securities and investment banking products.
The move will see Macquarie assume all the risk of the ING business now before full control is taken at the end of July, once all regulatory hoops have been jumped through. Some 428 ING staffers will become employees of Macquarie and the business will be rebranded Macquarie Equities.
It is understood Macquarie has bought 100% of the business and that there is no earn out or delayed payment structure to the acquisition. However due to the competitive nature of the business, Nicholas Moore, Macquarie's head of investment banking, said the actual consideration will not be disclosed.
He added that it is not a material figure, although it does represent 0.6% of Macquarie's Tier 1 capital and will increase the bank's headcount by 8%. Market rumours of a price around the $75 million mark were neither confirmed nor denied by Moore.
During the due diligence process over the past five weeks it has been found that there is a 15% overlap in clients between ING and Macquarie. With roughly 1000 institutional clients coming from ING, 850 of them will be new to the Australians. It is these clients who will be crucial to the success of the strategy.
That strategy appears to be driven by the desire to boost Macquarie's investment banking businesses in the region. The bank is the pioneer of some interesting investment vehicles, such as infrastructure and property funds in Korea and China as well as airport funds from all over the world. These funds offer equity investors a clear path to investing in infrastructure plays, which tend to have strong cash flows but limited growth.
These products have gone down well with Asian investors. Its recent Korea Road Infrastructure Fund for instance has now had three closings and contains about A$725 million of assets in it. Macquarie is also big in equity derivatives and can spread that business down through ING's distribution platform as well.
"This is a business that needs critical mass," says Moore. "We found that we would not do it organically and so its one of the few times that we need to step up and buy a business outright."
In terms of new growth, the one area where expansion is on the cards is India, where the bank has obtained an equities license and a potential, but unnamed JV partner. Overall, Moore says that ING is presently number 10 in equities in the region but Macquarie aims to take the business into the top five in the next two to three years, calling the model a "super regional broking business."
This will see some benefits derived from a combined Australasian and Asian panel rankings from large institutions, as well as deeper benefits to be weaned out of cross border flows from Australia to Asia and back again. Macquarie also wants to improve the research product on offer from the new equity business.
Goldman Sachs advised ING on the deal and Macquarie advised itself. ING initiated the discussions at the end of last year after it decided that it wanted to focus on products where it could add value and increase it margins. According to Sheel Kohli, the bank's Asia spokesman, these opportunities mainly lie in fixed income, structured finance and securitization as well as its traditional insurance businesses. ING will also be retaining its Asian equtiy derivatives business which will continue to be run out of Hong Kong.
