Image source: T. Rowe Price presentation, Oct. 28, 2021
T. Rowe Price Group Inc plans to acquire credit manager Oak Hill Advisors for up to $4.2 billion, marking its first big expansion into private markets as part of a bid to grow beyond its mutual fund retirement business.
On Thursday, the Baltimore-based money management firm said it will pay cash and stock to acquire 100% of the equity of Oak Hill, which, as of July 31, has $53 billion of capital under management.
At closing, T. Rowe will pay $3.3 billion, about three-quarters of which will be cash with one-quarter in common stock. The deal also calls for an allocation of additional $900 million in cash if certain business milestones are met, starting in 2025, the company said.
After the deal’s expected close in the fourth quarter of 2021, Oak Hill will operate as a standalone business within T. Rowe. Glenn August, Oak Hill’s founder and chief executive officer, will continue to lead his team and join T. Rowe’s board.
In a statement, Bill Stromberg, T. Rowe’s outgoing chief executive officer and chairman, said, “While we are committed to our long-term strategy to grow our business organically, we have also taken a deliberate and thoughtful approach to considering adding new capabilities through acquisitions that advance our business strategy.”
Oak Hill, he said, “meets the high bar we have set for inorganic opportunities and their proven private credit expertise will help us meet our clients demand for alternative credit.”
T. Rowe, which offers a suite of mutual funds, account management and other advisory services, manages $1.61 trillion in assets as of the end of September. The firm has recently been adding more actively managed exchange-traded fund offerings in response to increased investments in index-tracking products, according to Bloomberg News.
Rob Scharps, the firm’s president who will take over as chief executive officer on Jan. 1, said in July that any future mergers or acquisitions would prioritize potential partners that could offer new capabilities.
T. Rowe was advised by Evercore, while JP Morgan and M. Klein & Co advised Oak Hill.
The asset management sector has seen a flurry of M&A activity this year, including several tie-ups between mutual fund managers and private equity firms, Reuters noted.
Some of the most high-profile transactions include Wells Fargo’s $2.1 billion deal to sell its asset management business to private equity firms GTCR and Reverence Capital Partners, and Ares Management’s $1.1 billion acquisition of Landmark Partners.
Amid strong demand from investors, the consolidation trend is expected to continue for the rest of the year, according to a report from PricewaterhouseCoopers.
Separately, T. Rowe reported its third quarter earnings, with adjusted earnings per share of $3.27, missing the $3.30 average estimate of analysts surveyed by Bloomberg.
Net revenue totaled $1.95 billion, short of the $1.98 billion predicted by Wall Street.
The firm’s assets under management saw a 0.7% decline from the second quarter of 2021, but a 23% jump from a year earlier. As of Sept. 30, T. Rowe had $861 billion managed in U.S. mutual funds, $420.8 billion in subadvised funds and separate accounts, and $330.5 billion in collective investment trusts and other investment products.
Source: Equities News