L.A. money management firms scrap $2.6-billion merger
Two multibillion-dollar money managers in Century City have called off their $2.55-billion merger, a deal that would have created one of the country’s biggest private equity firms.
Behind the breakup? A continued slump in oil prices and weakness in energy investments.
Kayne Anderson Capital Advisors, the firm that would have been acquired, specializes in the energy sector. Until recently, that made it look like an attractive pickup for acquirer Ares Management, which has few energy investments and wanted to expand its investment offerings.
But Kayne Anderson’s four energy mutual funds have lost more than 40% of their value over the last year. Much of that loss has come since the deal was announced in July, noted Doug Mewhirter, a researcher who follows Ares for investment firm SunTrust Robinson Humphrey.
“Things have changed in the last three months,” he said. “There was no way the Ares team could tell if this market was going to come back.”
Crude oil now trades for less than $50 a barrel, a price not seen since 2009 during the depths of the recession.
Ares, headed by billionaire Atlanta Hawks owner Antony Ressler, and Kayne Anderson said in a joint statement early Tuesday that disagreements over how to combine the firms given weakness in the energy sector had persuaded them to scuttle the deal.
The soft oil market has more typically pushed companies in energy production to combine to save costs and shore up profits. Last month, for instance, oil pipeline operator Energy Transfer Equity said it would buy competitor Williams Cos. for nearly $33 billion.
Analysts and sources with knowledge of the L.A. deal said the push to call it off probably came down to big differences in how the two firms operate: Ares is publicly traded and therefore more concerned about short-term performance than privately held Kayne Anderson. The latter may even seek to double down on energy, hoping for a rebound.
Ric Kayne, Kayne Anderson’s chairman, hinted at that in a joint statement announcing the breakup.
“In my view, what is currently happening in energy is presenting us with one of the more opportunity-laden times,” he said. “Kayne is uniquely well-positioned to take advantage of the markets we are in.”
The company declined to comment beyond the statement. An Ares spokesman did not return requests for comment.
Ares will pay Kayne Anderson a $30-million breakup fee, and though the deal is off, Ares and some of its executives still plan to invest $150 million in Kayne Anderson’s energy portfolio.
Mewhirter said the investment indicates that Ares thinks energy investments are still attractive, just not something the firm wants too much exposure to.
“It’s them saying, ‘We think there’s value here, we’re just not betting the company on it,’” he said.
Ares and Kayne Anderson are headquartered just blocks apart in Century City.
Ares makes investments in private equity and private debt. Ressler, the firm’s co-founder and chief executive, said in interviews this year that combining Ares and Kayne Anderson would create a larger firm with more diverse investment offerings.
Kayne is not well known outside investment circles, but the firm’s co-founder, John Anderson, was a prominent billionaire beverage distributor and UCLA benefactor before he died in 2011.
The combined firm would have been called Ares Kayne Management with $113 billion in assets, making it one of the country’s largest private equity firms.
Shares of Ares shares rose 5 cents to $16.14 on Tuesday.
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