This post is by Iris Dorbian from PE Hub Blog: PE-Backed Mergers and Acquisitions
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NewStar Financial Inc has agreed to acquire Fifth Street’s middle market CLO management business. The price of the acquisition is about $16 million. The deal is expected to close in the third quarter of 2017. GreensLedge Capital Markets LLC advised NewStar on the transaction.
BOSTON, July 07, 2017 (GLOBE NEWSWIRE) — NewStar Financial, Inc. (Nasdaq:NEWS) (“NewStar” or the “Company”) announced today that it has agreed to acquire Fifth Street CLO Management LLC (“FSCM”), a wholly-owned subsidiary of Fifth Street Holdings L.P., an affiliate of Fifth Street Asset Management, Inc. (“Fifth Street” or “FSAM”) (NASDAQ:FSAM), a publicly-traded credit-focused asset management firm based in Greenwich, Connecticut. The estimated purchase price is approximately $16 million, net of $13 million of assumed indebtedness and will be subject to adjustment up or down based on certain working capital items as of the closing of the transaction. The acquisition will add
$726 million to NewStar’s assets under management, increasing total pro forma AUM to approximately $7.3 billion. The transaction is expected to close in the third quarter of 2017, subject to certain investor consents and other closing conditions set forth in the purchase agreement between Fifth Street Holdings L.P. and NewStar. The transaction is expected to be accretive to NewStar’s earnings per share in 2017.
FSCM was formed in 2015 by Fifth Street to manage its middle market CLO business. FSCM currently manages two CLOs backed by middle market loans and holds certain interests in its sponsored CLOs primarily to comply with regulatory risk retention requirements.
Over the past eighteen months, NewStar has focused on expanding its asset management platform by launching new managed funds, acquiring investment management platforms and increasing its investment activity. This transaction is the Company’s second acquisition adding to its managed assets and represents another important step in that strategy. The acquisition is highly complementary to the Company’s existing middle market direct lending business and provides balance to its overall asset management platform, increasing pro forma fee-paying AUM to $4 billion, split evenly between its middle market and liquid credit strategies platforms. The transaction also adds significantly to the Company’s lending capacity, allowing it to better meet the needs of its private equity clients and compete more effectively to lead new direct lending opportunities.
FSCM will become a wholly-owned subsidiary of NewStar and the funds will be managed by NewStar’s middle market investment team. The transaction is expected to add more than $2.5 million to the Company’s run-rate fee revenue and will serve as a further catalyst to the growth of NewStar’s asset management activities.
“This acquisition is consistent with our strategy to expand our asset management activities in ways that add to our value proposition for institutional investors and leverage our core strengths in direct lending, securitization and credit management. This transaction also provides an attractive way to diversify our business mix, adding to fee revenue and accelerating improvement in equity returns,” said NewStar’s Chairman and Chief Executive Officer Tim Conway.
“The transaction is expected to be accretive to earnings in 2017, adding predictable fee revenue derived from long-term CLO management contracts” added John Bray, NewStar’s Chief Financial Officer. “We were able to complete thorough due diligence and the terms of the transaction worked well for all parties.”
Seward & Kissel LLP served as legal counsel and GreensLedge Capital Markets LLC advised NewStar on the transaction.
About NewStar Financial, Inc.:
NewStar Financial, Inc. (Nasdaq:NEWS) is an internally-managed commercial finance company with $6.6 billion of assets managed across two complementary business lines — middle market direct lending and asset management. The Company’s direct lending activities are focused on meeting the complex financing needs of companies and private investors in the middle markets through specialized lending groups that offer a range of flexible debt financing options to fund working capital, growth strategies, acquisitions and recapitalizations. Through its asset management platforms, NewStar also offers a range of investment products employing credit-oriented strategies focused on middle market loans and liquid, tradeable credit.
NewStar is headquartered in Boston MA and has regional offices in Chicago IL, Darien CT, and New York NY. Please visit our website at www.newstarfin.com for more detailed information.