Brookfield Asset Management to acquire controlling stake in Oaktree Capital

May 2019 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

May 2019 Issue

Following months of negotiations Toronto-based Brookfield Asset Management Inc has agreed to acquire 62 percent of Oaktree Capital Management in a deal worth around $4.8bn.

The deal is subject to the approval of shareholders, regulatory approval and customary closing conditions, and is expected to close in the third quarter of 2019.

The merger, once completed, will create a combined alternative-asset manager which, the firms claim, would rival Blackstone Group, Apollo Global Management and The Carlyle Group LP which had around $472bn, $280.3bn and $216.5bn of assets under management at the end of last year, respectively. The combined Brookfield-Oaktree would have approximately $475bn of assets under management, including debt and $2.5bn of annual fee-related revenues. Including debt, however, Blackstone’s assets under management would be at least $650bn.

The transaction will see shareholders of Oaktree receive either $49 per share in cash or 1.077 shares of Brookfield common stock in exchange for each share of Oaktree currently outstanding. The agreed price represents a premium of 12.4 percent per Oaktree Class A unit, based on the closing price of Oaktree Class A units and Brookfield Class A shares on 12 March 2019, the day before the deal was announced, and a 15.9 percent premium based on the 30 day volume-weighted average price of Oaktree Class A units.

“As we continue to strategically grow Brookfield, we are thrilled to be partnering with Oaktree and with its exceptional management team whose credit business is second to none,” said Bruce Flatt, chief executive of Brookfield. “This transaction enables us to broaden our product offering to include one of the finest credit platforms in the world, which has a value-driven, contrarian investment style, consistent with ours.”

“The opportunity to join forces with Brookfield is ideal,” said Howard Marks, co-chairman of Oaktree. “Our firms share a culture that emphasises both investing excellence and integrity, and our businesses mesh without overlapping or conflicting. The rest of Oaktree management and I are excited about the combination of support and independence we expect. We look forward to having Brookfield’s contribution to our ability to serve our clients, and to doing the same for them.”

According to the press release announcing the deal, beginning in 2022, former employee-shareholders will be able to sell their remaining Oaktree stock to Brookfield, pursuant to an agreed upon liquidity schedule and approach to valuing such units at the time of liquidation, and Oaktree’s founders, senior management and current employee-shareholders will also have the option to do so. Pursuant to this liquidity schedule, the earliest year in which Brookfield could own 100 percent of the Oaktree business is 2029.

The companies will continue to operate independently, with each keeping its brand and being led by existing management. However, Mr Marks will join Brookfield’s board. The companies also noted that there would be little overlap in their investment strategies once the deal has been completed.

According to an Oaktree FAQ on the deal attached to the SEC filing: “Even where it may seem there may be some overlap, for example in infrastructure or real estate funds, each company operates in very different manners, resulting in minimal true overlap with respect to regional focuses, transaction sizes or markets, for example”.

The deal is a departure for Brookfield, which currently focuses on private equity, real estate, infrastructure and renewable power, and will see the company move into investing in debt, which accounts for around 70 percent of Oaktree’s assets under management. Recent investments by Brookfield have included the $13bn acquisition of the power solutions business of Johnson Controls, US mall operator GGP for $15bn and Forest City property group for $11.4bn.

Mergers in the asset management space are becoming more commonplace. In 2017, US alternative-asset manager Fortress Investment Group agreed to be acquired by Japan’s SoftBank Group Corp for about $3.3bn.

Richard Summerfield