SoftBank, led by CEO Masayoshi Son, buys Fortress Investment Group to help grow Vision fund
The deal comes as the federal government looks to dismantle post-recession rules, which is expected to drive financial services M&A
SoftBank Group Corp. is buying alternative-asset manager Fortress Investment Group LLC (NYSE: FIG) for $3.3 billion in cash to operate alongside the Japanese company’s soon-to-be-established technology investment fund. Financial services M&A is expected to pick up, as the federal government seeks to dismantle post-recession rules that prevented banks from participating in some activities.
Japan’s SoftBank will pay $8.08 a share for New York-based Fortress, a 39 percent premium to the company’s Feb. 13 closing price, according to a statement. Fortress principals Pete Briger, Wes Edens and Randy Nardone have agreed to continue leading the business, which will remain based in New York and operate independently within SoftBank, according to the statement.
SoftBank’s founder Masayoshi Son is in the process of creating a $100 billion Vision Fund with Saudi Arabia and other backers that would make the Japanese billionaire one of the world’s biggest technology investors. The Fortress deal will be separate from that vehicle and is aimed at bringing investment talent in-house, according to a SoftBank spokeswoman. The acquisition, subject to approval by Fortress shareholders as well as regulators, is expected to close in the second half of 2017.
“Fortress’s excellent track record speaks for itself, and we look forward to benefiting from its leadership, broad-based expertise and world-class investment platform,” Son, SoftBank’s chairman and chief executive officer, said in the statement.
“SoftBank is not doing a great job in communicating where this fits into their investment strategy,” said Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities Co. “There isn’t enough information and some people have an impression that this is an investment by the Vision Fund.”
Fortress was founded in 1998 by Edens, Nardone and Robert Kauffman, who came from Swiss bank UBS AG and New York-based BlackRock Financial Management Inc. Briger was hired from Goldman Sachs Group Inc. (NYSE: GS) in 2002. The three founders became billionaires when the fund went public in 2007 raising $634.3 million in the first IPO by a private-equity firm.
Fortress’s stock has slumped by nearly two-thirds since the listing, after the company booked losses over the first five years. The performance has come despite a more than doubling of assets managed by the firm, as dwindling performance by investment managers in the fallout of the global financial crisis has hit profitability.
Fortress managed $70.1 billion in credit assets, private equity holdings, hedge funds and fixed-income investments as of Sept. 30. Logan Circle Partners, a traditional bond fund manager inside Fortress, accounted for nearly half of that. Fortress investments included distressed assets such as a railway operator in Florida and hotels in rural Japan, the film studio behind Oscar winners “Birdman” and “12 Years a Slave,” and a bitcoin startup. Nizar Al-Bassam and Dalinc Ariburnu of F.A.B. Partners arranged the Fortress transaction and will continue to advise SoftBank with respect to the firm.
SoftBank’s ties to Fortress date back to 2014, when Son hired Rajeev Misra away from the asset manager. Misra will head the Vision Fund, and the buyout may reunite him with his former colleagues in overseeing investments for Son.
The SoftBank chief has stepped up deal-making in recent years as he transforms his company from a Japanese telecom operator into a more diversified investment company. Since the beginning of 2015, SoftBank has announced at least $44 billion of investments or acquisitions, including its $30 billion takeover of U.K. chip designer ARM Holdings Plc and a $1.2 billion group-led investment in satellite startup OneWeb Ltd., according to data compiled by Bloomberg.
SoftBank aims to close the first round of investment in the Vision Fund by the end of February, according to people familiar with the matter. The Japanese company has said it will contribute $25 billion, while Saudis bring in $45 billion. Apple Inc. (Nasdaq: AAPL), Qualcomm Inc. (Nasdaq: QCOM) and Oracle Corp. (NYSE: ORCL) chairman Larry Ellison will also invest $1 billion each, the people said, asking not to be identified because the matter is private.
“For SoftBank, this opportunity will immediately help expand our group capabilities, and, alongside our soon-to-be-established SoftBank Vision Fund platform,” Son said in the release.
JPMorgan Chase & Co. (NYSE: JPM) acted as financial adviser to SoftBank, while Weil Gotshal & Manges LLP and Kirkland & Ellis LLP provided legal counsel, and KPMG LLP acted as accounting and tax adviser.
For Fortress, Morgan Stanley acted as financial adviser and Skadden Arps Slate Meagher & Flom LLP provided legal counsel.
Paul, Weiss, Rifkind, Wharton & Garrison LLP provided legal counsel to the Fortress principals. Evercore acted as financial adviser, and Davis Polk & Wardwell LLP provided legal counsel to the special committee of Fortress’s Board of Directors.
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