Macquarie Bank: the surprise from down under

Maybe the sun never set on British merchant banking after all.

Last month Australia's Macquarie Bank -- which grew out of famed City bank Hill Samuel & Co. -- stepped into the spotlight as it mulled a bid to take over the London Stock Exchange. Relatively obscure on the global stage until then, Macquarie is no stranger to the headlines in Australia, where it has engaged in a rush of deal making.

On September 13, Macquarie announced that it would make a A$600 million ($400 million) IPO of its media assets and use the proceeds for acquisitions in Australia and overseas. Six days later it said it would lead a consortium to buy Oslo-based explosives group Dyno Nobel for A$1.7 billion. Late last month, Macquarie lodged bids to purchase airports in Delhi and Bombay, which are being privatized by the Indian government. Meanwhile, the firm is involved in a group bidding for toll-road assets being sold by the French government, and it is expected to launch an IPO of its South Korean road infrastructure assets in the next month, possibly raising as much as A$500 million.

Behind much of this activity is Macquarie's specialist funds business, which has grown tenfold in the past five years, to A$46 billion in assets under management. CEO Allan Moss, 55, describes his bank as a "federation of niche financial services businesses" that includes equity derivatives as well as fast-growing infrastructure and real estate funds. "It's a unique model," says Moss. "And now we've reached a size where we've hit the radar screens of investors round the world."

Rapid profit growth in recent years and strong prospects have given Macquarie a price-earnings multiple of 18, making it the envy of Wall Street and the European financial centers. In the fiscal year ended March 31, the 36-year-old firm saw a 67 percent increase in profits, to A$823 million. Macquarie has a A$15 billion market cap.

When it comes to the bank's intentions for the LSE, Moss is characteristically quiet. He will say only that Macquarie is considering a multibillion-dollar cash bid through one or more of its specialist funds. He notes that the LSE fits the bank's investment criteria. "We do look for assets that have safe income streams," says Moss, "and some degree of privilege in their market."