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Macquarie-watchers have long known that the Australia-based institution is now more of a global infrastructure manager and less of an investment/private bank, a journey that has gathered pace over the last 10 years.
One could hardly ask for a clearer illustration of this than buying an asset and wealth manager for $1.7 billion and immediately selling the wealth management part.
Macquarie’s purchase of Waddell & Reed Financial, the New York-listed US-based manager, is primarily about its asset management business. It has $68 billion in assets under management (AUM), mainly through the Ivy Investments brand. That will bring Macquarie Asset Management’s AUM to around $465 billion.
Already a global leader in infrastructure asset management, the deal will make Macquarie a top-25 player in actively-managed US mutual funds.
Macquarie Asset Management, which Macquarie Group chief executive Shemara Wikramanayake ran and built before stepping up to the top job upon Nicholas Moore’s retirement, already accounted for 47% of Macquarie’s total net profit in the six months to September 30.
Heart and engine
What Macquarie more broadly calls annuity-style income – as opposed to market-facing income – accounted for 70% of profit. This deal illustrates the intention to keep asset management not only at the heart of the business but overwhelmingly the engine of it all.
Waddell & Reed also has a wealth management business with around $63 billion in assets, but Macquarie doesn’t want it; this deal includes an agreement to sell that business to LPL Financial Holdings for $300 million, plus excess net assets. Macquarie and LPL will then form a long-term partnership.
It might seem odd to want to get rid of a wealth business, given that so many banks around the world are counting on wealth management as a mainstay of their long-term strategies, particularly in Asia.
But the context is different for Australian institutions. There, wealth businesses – specifically the part of it that focuses on individual financial advice – have become a tiresome reputational and compliance headache for which the industry was dragged through the wringer in a Royal Commission, leading most Australian banks to sell at least part of those units.
Wealth doesn’t have the same toxic associations in the US, but still, having decided wealth management advice is not core in Australia, Macquarie clearly also doesn’t consider it core anywhere else. But a partnership with a major US independent broker-dealer – they can work with that.
Active management
It’s worth noting that the acquisition is somewhat against type. The main drive of Macquarie’s asset management endeavours has been in infrastructure, not mutual funds for American mums and dads. The trend of recent years has been towards the ever-greater dominance of passive funds, not active managers.
But Martin Stanley, who runs Macquarie Asset Management, presents it as an important diversification step for the client base.
It would be wrong to see this as a bargain deal in a crisis. The $25 per share offer is well above the last close of $17.01 and more than double the April low of $10.98. The headline acquisition multiple is around 10 times enterprise value/ebitda or six times post sell-down of balance sheet assets, all of this being before the sale of the wealth business.
But it’s an available, established business in the right area at what Macquarie perceives to be the right time. The US is the largest client segment in the global asset management universe, the bank notes.
The deal is expected to close by the middle of 2021, by which time (if we’re lucky) the world might just be starting to look a bit more normal again. And there’s nothing more normal than Macquarie ending up on the right side of a deal.
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