Macquarie Group announced yesterday that it has agreed to acquire Fox-Pitt Kelton Cochran Caronia Waller LLC, a specialist investment bank founded in 1971 which is focused on financial institutions. Macquarie will pay $US130 million in equity value, plus $US16.7 million of long-term liabilities. They are acquiring Fox-Pitt from a consortium of private equity investors and management which includes J.C. Flowers & Co. Fox-Pitt was bought by Swiss Re in 1998 and sold to the investor group led by J.C. Flowers & Co. in 2006 for $75 million.
Together, Macquarie and Fox-Pitt will offer research on 765 stocks globally and double the coverage in their U.S. and European securities platform. The acquisition is part of Macquarie’s strategy of building its presence in the United States. In August, it purchased Delaware Management, an asset-management business, from Lincoln Financial for $428 million. It has also hired several bankers based in the United States who previously worked for firms like Citigroup, Morgan Stanley and Lehman Brothers. The most recent hiring was Kalpana Desai, the former head of M&A at Bank of America Merrill Lynch.
Fox-Pitt employs just over 260 people, with about half of them stationed in the U.S. According to Bloomberg data, Fox-Pitt was the 26th biggest U.S. equity underwriter this year and also “worked on 11 merger transactions globally, worth a combined $986 million”. Both George Cochran and Len Caronia, formerly of Fox-Pitt, will be staying on at Macquarie as Chairmen of the global FIG advisory business. John Waller and Charley Myers will also be taking on different positions within Macquarie.
Macquarie has said earlier this year that they expect full-year profit will plunge 50% due to investment and trading losses. If this prediction were to come to fruition it would snap 16 years of growth.
While the acquisition of Fox-Pitt certainly makes sense in a strategic manner, the overarching question of what this merger says about the state of larger banks vs. their regional competitors remains unanswered. When one adds in other news such as the merger between Cowen and Ramius or the recent sale of FTN Equity Capital markets Corp the picture becomes a little murky.
Fox-Pitt and other firms like it are looking for partners. This suggests that the market right now for “regional” or “boutique research” is tough. Previously Integrity saw considerable evidence that regional banks were hiring away talent from bulge bracket firms. Despite this, the fact that commission budgets are in fact down 30%-40% (as we have heard) there is just not enough to go around and a consolidation makes sense.
The strategic reasoning behind the creation of a global platform by combining Fox-Pitt and Macquerie’s offerings is clear, but the motives behind FTN are more confusing. In any case, it is an interesting trend to keep an eye on.