SoftBank’s billionaire founder Masayoshi Son, who has boasted of creating the “Berkshire Hathaway of tech”, has thrown himself into the world of private equity and hedge funds with a $3.3bn acquisition of US alternative asset manager Fortress Investment Group.
The deal, which follows the Japanese group’s traditional focus on telecoms and internet, comes just as SoftBank is emerging as one of the world’s largest investors with the imminent launch of its record-setting $100bn technology fund.
The all-cash offer of $8.08 per class A share for Fortress, with $70bn in assets under management, represents a premium of 38.6 per cent to the stock’s closing price on Monday.
Shares in SoftBank rose 0.9 per cent on Tuesday, in line with the broader Tokyo market, while shares in Fortress jumped 6.5 per cent to $6.21 before the deal was announced and a further 25.3 per cent to $7.78 in after-market trading.
In a statement, Mr Son indicated investment professionals at Fortress will be working closely with SoftBank to make its Vision Fund a success. The fund is headed by India-born Rajeev Misra, a former debt trader who briefly worked at Fortress before joining SoftBank at the end of 2014 as head of strategic finance.
People involved in the deal say the Fortress acquisition, which was organised in six weeks, underlies the depth of Mr Son’s ambitions, who has said he is thinking of a second and third fund to follow the Vision Fund. The fund has already won backing from Saudi Arabia’s sovereign wealth fund, Apple, Oracle and Taiwan’s Foxconn.
Fortress boasts investment expertise across a wide range of industries, although technology has not been chief among them. Listed vehicles focus on real estate, transport and media sectors, among others, and the company highlights recent private equity investments in consumer finance and senior living.
“For Masa $100bn is a joke,” said a person involved in the deal. “SoftBank is a private equity house. Masa wants to run $1tn.”
The sale price of $3bn is a far cry from the valuation put on Fortress when it floated in February 2007, the first of the private equity groups to go public at the peak of a leveraged buyout boom. The IPO valued Fortress at $7.4bn and it surged to $14bn within minutes of its market debut.
For Masa $100bn is a joke. SoftBank is a private equity house. Masa wants to run $1tn
Its fortunes failed to recover from the financial crisis to the same extent as other alternative asset managers, such as Blackstone, even as it has launched additional funds including credit funds and publicly listed investment vehicles. Its flagship macro hedge funds, run by former principal Mike Novogratz, suffered losses and customer outflows that resulted in their closure in 2015. Mr Novogratz left at the end of that year, selling his stake back to the company.
The $3bn purchase is not cheap for SoftBank, the owner of US wireless carrier Sprint, which just spent $32bn to acquire UK chip designer Arm Holdings last year.
The Arm deal already increased SoftBank’s net debt to ratio before interest, depreciation and amortisation to 4.3 times, from 3.8 times before the deal. The company has pledged to reduce that to 3.5 times within a few years.
Still, Tomoaki Kawasaki, an analyst at Iwai Cosmo Securities, said Mr Son may have considered the acquisition a discount considering that he is getting access to investment professionals and laying the infrastructure for the Vision Fund.
“The risk factor will naturally increase but in light of Mr Son’s track record so far, investor confidence is outweighing risk concerns,” said Mr Kawasaki. “We need to wait and see whether the Vision Fund delivers actual results.”
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