Macquarie Capital hired to help Magellan Financial

Magellan CEO David George. Picture: John Feder, The Australian.

Magellan Financial is understood to have hired Macquarie Group as its new adviser, replacing Barrenjoey, of which it is a shareholder.

The Australian fund manager has held recent talks with investment banks around the market as part of a consideration to bring in a new financial adviser to assist it in weighing future options, which was understood to include a possible deal with private equity.

However, now the focus for Magellan is more on mergers and acquisitions, as chief executive David George moves to re-build the business, which some market experts say could take up to four years.

A view is that Magellan undertakes deals worth about $300m over time in the asset management space.

It is understood that advisers around the market were spoken to by Magellan’s board about two months ago to find an investment bank that would offer advice on the future direction of the business.

Sources say that Challenger would be a buyer of Magellan, but only at a discounted price, as would Regal Funds, but only if it became “really cheap”.

In terms of mergers and acquisitions, Magellan says it has a strong balance sheet and cash in the bank, but a view is that it would likely need to offer its own shares to fund a transaction, something that could place downwards pressure on its share price, despite the company’s balance sheet being in strong shape.

Magellan was once hailed as the great success of star stock picker and co-founder Hamish Douglass.

But turmoil began for Magellan in 2021 as the sudden departure of chief executive Brett Cairns threw the spotlight on executive chairman Hamish Douglass and the split from his wife.

The company then lost a key mandate from its major client St James’s Place, responsible for about 12 per cent of revenue and causing its shares to crash from about $29 to $19 following the announcement, and has lost other mandates since.

Compounding its challenges have been the weak macro-economic conditions.

Mr Douglass has since left the company’s board, sold down much of his stake in the company, while co-founder, former UBS Australia boss Chris Mackay has ceased running the global equities strategy.

Magellan chief executive David George said he would take on the role of chief investment officer with Gerald Stack, portfolio manager of the Magellan Infrastructure Fund, to become deputy CIO.

Magellan is a 40 per cent shareholder of investment banking start up Barrenjoey, which worked with Mr Douglass on the sale of his shares.

Magellan offloaded its 11.6 per cent investment in Mexican fast food chain Guzman y Gomez this year to Barrenjoey for up to $146m after buying the interest in 2020 for $86.8m.

Both investments under Mr Douglass’ watch were heavily criticised by investors.

Magellan’s share price has fallen dramatically since 2020 - it was worth more than $70 before the company’s fallout.

Shares on Monday closed at $9.51, with Magellan’s market value at $1.78bn.

Barrenjoey was started by high profile UBS rainmakers such as Matthew Grounds and Guy Fowler.

Mr Grounds and Mr Fowler are known to have had a close, longstanding relationship with both Mr Douglass and Mr Mackay.