Macquarie Group Ltd interested in $1 billion digital infrastructure acquisition

Financial news wire Bloomberg is reporting that bankers at Macquarie Group Ltd (ASX: MQG) are set to offer US$800 million (A$1 billion) to buy a majority stake in U.S. group T5 Data Centres.

According to Bloomberg’s sources the deal is close to getting over the line and will be financed out of Macquarie Capital the group’s principal investments and capital markets advisory business.

T5 Data Centres reportedly runs data centres in New York, Dallas, LA, Chicago, Portland, Atlanta and Ireland among other places, with over 11 million square feet of data centre space to help large companies store their digital footprints online.

The data centre space is hot thanks to its powerful tailwinds as more data is created by large businesses everyday, which is fuelling demand for services such as those provided by T5.

In Australia for example data centre operator NextDC Ltd (ASX: NXT) has been one of the fastest-rising mid-cap stocks going over the last few years as it enjoys surging demand for its services.

Data centres also tend to provide reliable revenue streams as clients have little choice but to use them if they want to manage business and regulatory data storage requirements.

The idea of data centres as the digital infrastructure of tomorrow is likely appealing to Macquarie then as an investor traditionally focused on tangible infrastructure such as roads, airports, and other large-scale construction projects that require financing.

Macquarie stock recently hit a record high as investors re-rate its potential based on its innovation and the general strength of capital markets over the past year. The falling Australian dollar is another tailwind and investors will be keen to hear any update on its operating performance at its upcoming July 26 AGM.

Given the stock is now at $123.30 the market is pricing in some mid-single-digit profit growth for the group in its financial year 2019 that ends on March 31 2019. This seems a reasonable prospect if markets remain robust and this high-quality group continues to look one of the best options for investors among the financials on the ASX. This is because it offers overseas exposure, a good yield and a culture that aligns shareholders’ interests with staff.

For now I’d rate the stock a hold, but still believe it to be streets aheads of the Australian housing market leveraged mainstream banks like Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC).

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Motley Fool contributor Tom Richardson owns shares of Macquarie Group Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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