Blue Owl considers merging portfolio companies to form industry giant

2024-12-17 12:48:00

Investing.com – Business-savvy billionaire Michael Rees is exploring the possibility of merging three to five Blue Owl portfolio companies to create a major player in the sector, the Financial Times reported, citing four sources familiar with the matter. The proposed combination would cover a variety of sectors, including private equity buyouts, credit-based investments, infrastructure businesses and real estate.

Blue Owl was founded in 2021 by the merger of Dyal Capital, a company founded by Rees, with credit investor Owl Rock Capital and a public Spac during the boom. It has stakes in private infrastructure groups like Stonepeak and I Squared Capital, as well as companies with large infrastructure-like portfolios like Bridgepoint. Blue Owl also holds minority stakes in Vista Equity Partners, Silver Lake, HIG Capital, Platinum Equity, Cerberus and Clearlake Capital, among others. The company would not be involved in any potential merger.

While Rees’ proposal is still in its early stages, it highlights the ongoing consolidation in the alternative investment market. The industry’s top dealmakers are being forced to decide whether to stay private and focus on a few core competencies or join larger publicly traded financial groups.

BlackRock’s $12 billion acquisition last week of credit manager HPS, a Blue Owl portfolio company, has led many firms to reconsider their strategies. There is growing concern among executives that the sector’s influence will be increasingly controlled by a few diversified entities capable of attracting new capital from sources ranging from large sovereign wealth funds to individual investors and potentially even pension savers.

In October, Goldman Sachs executive Michael Brandmeyer warned that many independent private equity groups were underestimating the influx of cash to larger players and the challenges arising from succession processes. He called these groups “zombie companies,” saying they were unaware of investing their last funds.

Despite continued disruption in the private equity industry, advisors have noted that corporate discussions rarely lead to transactions due to concerns about conflicting strategies and personalities. As one private equity executive close to Blue Owl puts it, Rees’ proposed merger would be a “merger of equals,” with different valuations in different sectors and some overlap, making it a complex but potentially beneficial move.

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