The Story Behind Softbank’s Purchase of Fortress Investment Group
The first private equity firm in the U.S. to be publicly traded has now become the first private equity firm in the U.S. to be delisted from the New York Stock Exchange. Now that it has been acquired by SoftBank, the Japanese multinational holding conglomerate-and 38th largest publicly traded company in the world-Fortress Investment Group will continue to operate independently. It will also retain its leadership, including CEO Randy Nardone and co-chair Wes Edens. In fact, it might even be argued that the acquisition was largely in name only-but there are good reasons for that.
The acquisition itself didn’t come easily for SoftBank. However, it was officially announced and made final at the end of December 2017, and it surprised plenty of people. After all, SoftBank is famously focused on investing in technology-based firms while Fortress is one of the largest alternative asset managers in the world. The move is just the first broadly public acknowledgement by SoftBank of its intention to become one of the largest investment firms not just in the U.S. but in the world. Given that the 20-year-old global investment management firm manages more than $40 billion in assets, it is safe to say that it has the clout that SoftBank clearly desires.
The Japanese conglomerate’s all-cash buy of Fortress is less about swagger and all about boosting in-house operations One venture that stands out from the rest is SoftBank’s $3.3 billion all-cash purchase of Fortress Investment Group — a major Manhattan property investor and lender — at the end of last year.
The going hasn’t been easy for SoftBank in its acquisition of Fortress Investment Group. Like other foreign firms, the company had to run the deal by the Committee on Foreign Investments in the U.S. as a matter of national security. For the deal to go through, SoftBank reportedly had to agree to having limited say in how Fortress manages its assets. It was also held up by other pending SoftBank deals, including the acquisition of Boston Dynamics and the transfer of around 25 percent in the UK’s Arm Holdings to its investment fund.
SoftBank’s beloved founder and CEO, Masayoshi Son, clearly predicted that the firm would face hurdles in acquiring Fortress. In the wake of the inauguration of President Donald Trump, the CEO made attempts to charm the president by visiting Trump Tower and, more importantly, by pledging a $50 billion in the U.S. During a joint session of Congress in 2017, the president spoke fondly of SoftBank, making it clear that he appreciated the company’s overtures. SoftBank paid a 39-percent premium to the share price, so shareholders received $8.08 per share.
As part of the acquisition, SoftBank paid $3.3 billion in cash, and it now owns all outstanding Fortress shares. The acquisition was in stark contrast to the company’s usual tactics, which typically involve buying tech startups and companies that are developing innovative new technologies. However, the move makes sense to the team at SoftBank, which is now striving to become one of the largest investment firms on the planet. With the move, the company will develop a London firm-SoftBank Financial Services-which will employ around 1,000 people. This will allow the company to have a structure and design that are more conducive to crucial aspects of investing, including compliance and investor relations.
The acquisition came down nearly 20 years after Fortress Investment Group came into being. The company was founded in 1998 by CEO Randy Nardone and co-chair Wes Edens. At the time of its acquisition, Fortress was managing assets on behalf of more than 1,750 institutional clients and private investors. The company went public on the NYSE on February 9, 2007. Through the years, it received many accolades; in 2014, for example, it was named Hedge Fund Manager of the Year by Institutional Investor. The company, which has significant holdings in companies like Lyft, Xapo and Jawbone, among many others, already has a bit of a track record in Japan. Following the economic downturn of 2008, it bought hotels that had been owned by Lehman Brothers.
The company that has acquired Fortress Investment Group has an interesting history too. Its roots stretch back to 1981, when it was founded by Masayoshi Son in Tokyo. The company is still headquartered there, and Masayoshi Son continues to serve as CEO. A few years back, SoftBank developed a goal of creating an alternative asset investment arm. From there, a group of investors at the company’s London and Tokyo offices started looking for potential deals-and they knew that they’d found a great one after looking into Fortress.
As mentioned before, the acquisition isn’t expected to change the way in which Fortress operates on a day-to-day basis. The move has precipitated one very big change, however-the company has been delisted from the NYSE, so it will no longer be publicly traded. Indeed, in an interview, Wes Edens stated that the biggest change will be no longer making earnings calls. “We’re rooting for being private. I’m excited about that,” he said.
SoftBank has been in the news a lot lately, and that’s largely because of its headline-grabbing technology investment fund, the Vision Fund. Currently valued at around $93 billion, it is the largest fund of this kind ever to be developed. When word started to spread about SoftBank’s acquisition of Fortress, many wondered how the Vision Fund would come into play. However, it has been reported that Fortress Investment Group will work alongside the fund-not directly with it. Interestingly enough, the fund is operated by Rajeev Misra, who went over to SoftBank from Fortress a while back.
The acquisition of Fortress by SoftBank is the just the latest in a long line of major developments for the alternative asset management firm. The company operates a credit business as well, which is led by Pete Briger. It sold Logan Circle Partners, a fixed-income business that oversaw around $30 billion, to MetLife in a $250-million deal. In 2017, the company reported $215 million in profits versus around $16 million during the first nine months of 2016. This was largely because of the aforementioned sale of Logan Circle Partners, but it will be interesting to see how its acquisition by SoftBank will affect its success in the future.
Originally published at https://atypicalworkday.com on November 12, 2018.
