Macquarie Group will nearly double the number of traders at its U.S. broker-dealer as a result of its acquisition of U.K. broker Fox-Pitt Kelton.
The giant Australian brokerage entered into an agreement earlier this month to acquire the London-based investment bank Fox-Pitt Kelton Cochran Caronia Waller. Fox-Pitt specializes in financial services.
The merger is good news for the U.S. traders and sales traders at Fox-Pitt, as Macquarie will bring them into its ranks, as well as those involved in research, advisory and capital markets. The deal is expected to close by the end of the year.
Macquarie Capital USA will absorb roughly half of Fox-Pitt’s 267 employees already working in the U.S. The remainder of Fox-Pitt’s staff in investment banking and in Europe will join other parts of Macquarie. The purchase will greatly boost the number of traders the U.S. broker-dealer has, said Greg Coleman, Macquarie’s head of U.S. equities sales and trading.
"We nearly double the size of our trading apparatus," Coleman said. "It helps us expand into a much broader footprint on the trading side in financial services. It’s a glove fit."
Macquarie Capital USA declined to say how many traders and sales traders it would have once the two desks are merged. But the two firms’ trading departments will be combined with no headcount reduction, Coleman said, adding that the expanded desk should give the firm a larger footprint and raise its profile with clients.
Following the purchase, Macquarie Capital USA will have between 60 and 80 sales trading, research sales and market making pros, Coleman said. And it also lets the firm be much more aggressive on the market making front for financial services as a sector, he added.
Austin Graham, head of U.S. equities trading, said the purchase is a synergistic fit, as Macquarie Capital USA previously had no financial services offering. Macquarie’s core competencies comprised energy, aerospace defense, industrials, commodities and real estate. "In that respect, it’s actually a perfect airlift into a hole that we previously had," Graham added.
The acquisition gives Macquarie Group coverage of the financial services on a global scale, Coleman added. The brokerage already has a strong Asian financials presence, he said. Fox-Pitt lets Macquarie add the U.S. and Europe, bringing the total number of financial firms under coverage to more than 700.
Macquarie’s move was typical of those global firms who, over the past 18 months, have taken advantage of the opportunities the dislocations in the markets have afforded them, said one buyside trader. He said his firm does not currently trade with Macquarie, but trades financials and has traded with Fox-Pitt.
And Macquarie, a very well-regarded bank in the Australia/New Zealand region, is going about building a U.S. presence the right way, he said. "This is part of the revolution of this business," he said. "If a foreign bank wants to do something to develop a U.S. presence, they have to go out and buy someone who has some sort of pipeline, or groundwork, already in place."
Macquarie Group launched its U.S. broker-dealer as an agency and research shop in November 2007. Its initial strategy was to gradually roll out more execution and research services as it picked up business.
But revenues exceeded expectations in its first year. In addition, its client list and research coverage grew, compelling the firm to adjust its schedule and hire more traders and research staff, Graham said.
Macquarie Capital USA started committing capital in March. And it plans to launch its program trading capabilities within a week or two, Coleman said. It is working to develop execution capabilities in derivatives and convertibles, as well, he added.
For the acquisition, Macquarie Group will absorb Fox-Pitt’s balance sheet, according to Graham Copley, who runs U.S. equities for Macquarie Capital USA. The transaction consideration consists of $130 million in equity value, plus $16.7 million of long-term liabilities, less cash on balance sheet at financial close, according to a Macquarie press release.
The consideration will be paid in cash, a portion of which will be deferred over four years following financial close. The transaction should close by the end of 2009, Coleman said, and is subject to regulatory approvals and other customary closing conditions.
