T. Rowe Price (TROW) Wraps Up Buyout of Oak Hill Advisors
To expand its expertise in the alternative credit markets, T. Rowe Price (TROW) closes its previously announced buyout of Oak Hill Advisors.
To expedite its ambit into the alternative credit markets, T. Rowe Price Group, Inc. TROW acquired a domineering alternative credit manager Oak Hill Advisors, L.P. (OHA). The move complements TROW’s current global platform and the ongoing strategic investments in its distribution competencies and core investments. The cash-and-stock transaction, valued at $4.2 billion, was announced in October 2021.
Through the acquisition, T. Rowe Price will leverage its access to OHA’s 30- year track record and $56 billion of assets under management across private, distressed, special situations, liquid, structured credit and real-asset strategies. OHA also has a large and diversified customer base.
Rob Sharps, T. Rowe Price’s president, head of Investments, group chief investment officer and the incoming CEO, remarked, "This acquisition allows us to broaden our private markets business and add new capabilities in an area of tremendous client interest and growth."
Glenn August, founder and CEO of OHA, said, "T. Rowe Price and OHA share common values and a commitment to delivering outstanding investment performance and client service. Together, we have the ability to deliver even more value to our clients whom we expect to benefit from greater scale and a broader range of product offerings over time."
Alternative credit strategies are gaining a lot of traction from institutional and retail investors, globally, pursuing of attractive yields and risk-adjusted returns. Scale is becoming increasingly essential in a competitive landscape, especially for sourcing financing opportunities and propelling distinct returns across the alternative credit markets. Via this acquisition, T. Rowe Price’s suite of equity, fixed income and multi-asset solutions is expected to promote benefits of scale, facilitating better opportunities for investors, borrowers and financial sponsors.
Given the constrained overlap in investment strategies and clients, the two companies anticipate capitalizing on complementary distribution capabilities. Additionally, per the press release, during acquisition announcement, OHA and T. Rowe Price aim to co-develop new products catering to the latter’s wealth and broader retail distribution channels, including its broker-dealer, bank, RIA and platform businesses.
Per the same press release, T. Rowe Price had agreed to apportion $500 million to co-investment and seed capital alongside OHA management and investors. Both firms plan to delve into opportunities to expand into other alternative asset categories.
Going by the announced deal terms, of the total consideration, $3.3 billion (approximately 74% in cash and 26% in T. Rowe Price’s common stock) is payable to OHA at completion. An additional $900 million in cash will be paid if certain business breakthroughs beginning 2025 are achieved.
The purchase price includes the retirement of OHA debt outstanding at closing. At the time of the deal announcement, T. Rowe Price had projected the acquisition to be accretive to earnings per share by a low-to-mid single-digit percentage in 2022 (excluding amortization of intangibles and the expense impact of the earnout).
OHA will function as a standalone business within T. Rowe Price. The firm will have autonomy over its investment process and maintain its team, culture and investment approach.
TROW is well positioned for organic growth over the long term, given its strategic initiatives. Its inorganic efforts, including launch of investment vehicles, enhancement of client-engagement capabilities in each distribution channel and derivation of long-term cost efficiencies, bode well. Moving ahead, such measures are likely to bolster revenue growth.
In the past six months, shares of T. Rowe Price have declined 1.2% against 7.4% growth recorded by the industry it belongs to.
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Currently, T. Rowe Price carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Inorganic Growth Efforts by Other Firms
Several companies from the finance sector are making consolidation efforts to counter the low-interest-rate environment and high costs of investments in technology.
In early December, United Bankshares, Inc. UBSI announced the completion of its merger deal with Community Bankers Trust Corporation.
The buyout brought together two high-performing banking companies. It also bolsters United Bankshares’ position as one of the largest and the best-performing regional banking companies in the Mid-Atlantic and the Southeast. The combined entity will now operate across 250 locations in the opportunistic markets of the United States.
First Financial Bancorp. FFBC agreed to acquire the fourth-largest independent equipment financing platform in the United States called Summit Funding Group. The deal completion, subject to customary closing conditions, is expected in the fourth quarter of this year.
The acquisition of Summit is expected to be accretive to First Financial’s earnings per share by mid-single digits in 2023 (the first year post integration). Thereafter, on a run-rate basis, the deal is expected to be accretive to earnings by low-double digits.
U.S. Bancorp’s USB primary subsidiary U.S. Bank completed the buyout of PFM Asset Management LLC. The acquisition was carried out through U.S. Bancorp Asset Management. The deal to acquire PFM Asset Management was announced this July.
U.S. Bancorp’s several acquisitions over the years have enabled it to foray into the untapped markets and fortify its footprint in the existing geographies.
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