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Mar 21, 2019

Howard Marks sees industry consolidation after US$4.7B Brookfield tie-up

Oaktree's Marks Sees More Industry Mergers After Brookfield Deal


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Howard Marks, whose Oaktree Capital Group LLC agreed to a tie-up with Brookfield Asset Management Inc. (BAMa.TO), said he expects to see more mergers in the industry but not a wave of them.

“I think you will start seeing mergers," Marks, co-chairman of Oaktree, said Thursday in an interview with Erik Schatzker on Bloomberg TV.

Bruce Flatt, chief executive officer of Brookfield, echoed Marks, saying there would be more deals in asset management, but “not that many.’

The combination of Brookfield and Oaktree, announced last week, would create one of the world’s largest alternative money managers, with US$475 billion in assets. The deal may appeal to institutional investors looking for a one-stop shop: it bolsters the credit business of Brookfield, which has traditionally focused on real estate, and provides Oaktree exposure to assets that thrive when economies grow.

“There are no other firms with the heft of Brookfield, with their list of offerings, which meshes so well with ours without significant overlap or cannibalization,” Marks said. “Also, with the same culture.”

Toronto-based Brookfield will acquire a 62 per cent stake in Oaktree in the cash and stock transaction, the companies said in a statement on March 13. The deal is worth roughly US$4.7 billion.

Flatt has said in the past that it was unlikely that Brookfield would ever buy another asset manager. But as Brookfield’s business grew, he said there was an increased demand for credit in its portfolio.

“It’s not something we’ve ever really thought of,” he said. “But as our clients get bigger, and our offerings need to be larger, the one area that we were lacking to be able to deliver to them was credit. This business is large enough that it can be delivered to our clients.”

Brookfield, which approached Oaktree in October, will acquire shares of Oaktree for US$49 in cash or 1.077 Brookfield shares, a 12.4 per cent premium as of March 12, according to the statement.

Shares of Oaktree rose about 13 per cent since March 12, the day before the deal was announced. Brookfield gained 1.3 per cent, as of Wednesday’s close.

The two companies will continue to operate independently, with each keeping its brand and led by existing management. Marks will join Brookfield’s board. Under the terms of the deal, Brookfield could take over full ownership of Oaktree by 2029.

Brookfield, founded 120 years ago, is Canada’s largest alternative asset investment firm and owns companies ranging from real estate to infrastructure and renewable power.

Marks, 72, co-founded Los Angeles-based Oaktree in 1995 and it managed US$120 billion in distressed debt, private equity holdings, real estate, infrastructure and other equity assets as of Dec. 31.