Macquarie Group share price: is AUM of $1 trillion the aim?

According to analysts from Morgan Stanley: ‘We think >A$1tn AUM should be MQG's target.’

The GEFI deal

Macquarie Group (ASX: MGQ) yesterday announced that it would be buying AMP Capital’s global equities and fixed income business (GEFI), for a total consideration of up to $185 million.

The GEFI business has operations spanning fixed income, Australian listed equities, listed real estate and listed infrastructure.

Both AMP and Macquarie’s stock didn’t move much after the deal was announced: the market was seemingly indifferent, with Citi describing the acquisition as immaterial, in terms of earnings benefits.

The deal – which is made up of a $110 million upfront cash consideration and up to $75 million in earnouts – will see Macquarie’s assets under management (AUM) reach $720 billion.

Commenting on the implications of the acquisition, Head of Macquarie's Asset Management, Ben Way said:

'This transaction represents another opportunity, following our recent acquisition of Waddell & Reed, to add scale and expand our public investment capabilities.’

'It cements Macquarie's position as the leading investment manager in Australia by AuM, and provides new clients joining us from AMP Capital with access to Macquarie's diversified investment offering and global platform.'

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Is AUM of $1 trillion the aim?

Below we look at some key comments on the deal from leading Australian brokers.

According to analysts from Citi:

‘Macquarie's acquisition of AMP Capital's global equities and fixed income business (GEFI), signals their clear intent to build global scale in public markets.’

Despite that, Citi has a Sell rating and $140.00 price target on Macquarie, noting that the stock’s ‘valuation and earnings expectations appear stretched near-term, with rising risks around interest and tax rates.’

By comparison to Citi, analysts from Morgan Stanley have an overall more optimistic view on Macquarie, assigning the stock an Overweight rating and $175.00 price target.

Morgan Stanley also agreed that the deal appears aligned with Macquarie's broader strategy of focusing on ‘bolt-on deals to add scale,’ while adding that ‘We think >A$1tn AUM should be MQG's target.’

The investment bank further noted that the deal price of up to $185 million looks reasonable on valuation grounds and when stacked against comparable businesses.

An acquisitive streak

The AMP deal builds on Macquarie’s recent history of bolt on acquisitions, with the group recently finalising the acquisition of Waddell & Reed Financial for a total consideration of US$1.7 billion.

At the time of that acquisition management noted that Macquarie Asset Management would become one of the 'top 20 actively managed, long-term open-end US mutual fund manager by assets under management.’

The Macquarie Group share price was down 2.67% at the time of writing to $152.95 per share. The ASX 200 benchmark was also lower.

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