The Macquarie Group Ltd (ASX: MQG) share price is rising this morning after it announced it has completed a £2.3 billion ($3.9 billion) deal to buy the Green Investment Bank (GIB) from the UK government.
The GIB was setup by the UK government in 2012 to invest public or private capital on commercial terms into renewable energy, low carbon, or other environmentally friendly services or infrastructure projects.
In that sense it's a green version of the old multilateral development banks such as the World Bank or European Bank for Development that were setup to invest in private sector projects that promoted economic development and social responsibility in emerging market economies often dominated by state ownership.
These publicly-funded development banks commonly have a reputation as grazing grounds for bankers more interested in long lunches and large expenses over long hours, so Macquarie's takeover of the GIB may see a change in the working culture at the Edinburgh-based organisation.
The deal also ticks the boxes for Macquarie on several fronts, which explains why it was reportedly so keen to get it across the line.
On a basic level it brings an additional £4 billion of green infrastructure assets under Macquarie's management, with a mandate to invest an additional £3 billion into green energy projects over the next three years.
Multilateral development banks commonly invest as vanilla lenders or in issued debt or equity on a syndicated basis to share the risk, with the lead arranger (GIB) earning additional fees for, inter alia, sourcing the borrowers, assessing credit risks, advisory work, and structuring deal terms.
Fortunately for Macquarie the GIB comes with some seriously cashed-up partners in place in the form of the UK government, British pension funds and other super-sized investors all keen to invest in environmentally friendly projects as they're often mandated to in today's world where pressure exists to invest with social responsibility.
It's likely that the Macquarie bankers and infrastructure specialists see an opportunity to generate a greater return on GIB's current assets and lending activities going forward, while being able to source funds (liabilities) from a cashed up queue of public and private capital backers at relatively cheap rates.
Moreover, now that Macquarie has effective ownership of the GIB's assets it has the option to sell off some investments at a potential profit (the asset stripping allegations that have reared up in the past) and to cut costs via potential staff redundancies or elsewhere.
It's also likely the value of assets on the balance sheet could be revalued upwards as the majority are investment projects in the construction or infrastructure space that may appreciate in value over time. While its investment funds are also likely to swell in value over time and generate growing fee streams for the GIB thanks to Macquarie's status as a leading infrastructure asset manager with wide distribution networks and capabilities.
If Macquarie can crank the GIB's profitability (which would be no surprise), while dramatically growing its balance sheet due to the queue of cashed up partners and available investment projects it's acquisition is likely to be earnings per share accretive over the long term to the Mac Bankers.
Outlook
Due to its adaptability and big shift into the asset management space I still rate Macquarie share as a buy at $87.80 as this business is now largely a growing asset manager that also does a little investment banking work on the side.
Moreover, for a market-leading asset manager its valuation is attractive on around 14x analysts' estimates for earnings per share in FY 2017, with an estimated yield around 4.9%.
Given its overseas exposure and greater adaptability it also looks a better long-term bet than Australia's residential property leveraged big 4 banks such as the National Australia Bank Ltd (ASX: NAB) or Westpac Banking Corp (ASX: WBC).
