Other firms may be looking for a way to get more permanent capital to do deals. Private equity firm TPG has explored other private financing arrangements, including a possible sale of a stake in the company, Bloomberg reported last year. In 2015, Ares agreed to a combination with Kayne Anderson Capital Advisors that was eventually scrapped after a slide in oil prices.
Direct lending may be another area ripe for acquisitions. The booming market has attracted a number of smaller players, raising concern that some lenders have over-extended themselves and may need a rescue.
“If anyone is going to buy, it will be the smaller firms that will be bought,” said Gerald O’Hara, an analyst at Jefferies Financial Group. “They are easier to absorb, can grow organically inside and there will be less of cultural clash.” O’Hara said the latest deal was the exception because not many firms are capable of doing such large deals.
Brookfield will acquire a 62 per cent stake in Oaktree, creating one of the world’s largest alternative money managers, according to a statement. The cash and stock deal is worth roughly $US4.7 billion. The firms together will have about $US475 billion of assets under management and $US2.5 billion of annual fee-related revenue. Blackstone Group managed $US472 billion at year-end, according to its earnings release.
Blackstone said its comparable assets figure would be more than $US650 billion because its number doesn’t include debt.
The deal will bolster the credit business of Brookfield, which has traditionally focused on real estate. It also provides Oaktree, a specialist in distressed debt, exposure to assets that thrive in turbulent economic times.
For Marks, a 72-year-old billionaire, there may have been another appeal to the deal: the opportunity to cash out. The terms of the transaction allow Brookfield to take full ownership of Oaktree by 2029.
Brookfield “approached us with a transaction that we found highly appealing from the beginning, based on providing a lot of runway for us in which we can independently run the business and the option of eventual liquidity”, Marks said in the interview. Brookfield also offered a “very high price”, he added.
“We could see more M&A across the sector as aging founders of alternative managers seek a liquidity event and money managers bolster capabilities in alternatives,” Morgan Stanley analysts led by Michael Cyprys said in a note to clients. “This could increase investor perception of strategic value across the sector.”
Real estate deals
Brookfield, which approached Oaktree in October, will acquire shares of the Los Angeles-based firm for $US49 in cash or 1.077 Brookfield shares, a 12.4 per cent premium as of March 12. Oaktree closed up 12.5 per cent at $US49.30 in New York, the biggest gain since the company went public in 2012.
Brookfield, founded 120 years ago and led by chief executive Bruce Flatt, is Canada’s largest alternative investment firm and owns companies ranging from real estate to infrastructure and renewable power. Iconic holdings include Manhattan West, the new complex at New York’s Hudson Yards. It bought a 99-year lease on 666 Park Avenue last year, bailing out the family firm of presidential son-in-law Jared Kushner.
In the past year the firm acquired mall owner GGP for $US13 billion, Forest City Realty Trust for $US6.7 billion and a power-solutions business from Johnson Controls for $US13.2 billion.
Marks, Bruce Karsh and other partners founded Oaktree in 1995. The firm managed $US120 billion in distressed debt, private equity holdings, real estate, infrastructure and other equity assets as of December 31. It has returned 78 per cent since its initial public offering in 2012.