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Breakingviews - Fund firm merger-SPAC deal has hairy outline

A trader looks up at a chart on his computer screen while working on the floor of the New York Stock Exchange shortly after the market opening in New York July 11, 2013. REUTERS/Lucas Jackson

NEW YORK (Reuters Breakingviews) - Sometimes a transaction looks so hairy that it’s hard to tell if there’s a sensible idea at its core. Dyal Capital Partners and Owl Rock Capital Partners are considering merging and going public through a third entity, a blank-check vehicle called Altimar Acquisition, the firms said on Wednesday. It’s a complex triangle even without circular wrinkles.

Dyal, a unit of Neuberger Berman, oversees holdings in other alternative asset managers worth some $22 billion. Owl Rock has direct-lending assets under management of $24 billion. Here’s where it gets interesting: Dyal last year bought a stake in Owl Rock, paying $500 million for a 20% interest according to the Wall Street Journal.

That’s a potential conflict of interest, something not uncommon and manageable with care. But there’s more. Altimar, the special-purpose acquisition company that may buy into the Dyal-Owl Rock combo, is sponsored by another investment firm, HPS Investment Partners. Dyal bought a slice of HPS in 2018.

Again, that ought to be manageable. Shareholders in SPACs like Altimar are often specialist funds that leave such things to the principals involved. One challenge for investors who may buy in after a SPAC has found a target, however, is that deal terms are set by the same few people, not through a traditional market-based price-discovery process.

Disclosures surrounding a SPAC acquisition may also be less complete than if a target had gone through its own initial public offering. It’s even harder to keep track when there’s a three-way deal in which two asset managers have to agree their relative valuations and also settle on a price tag for the whole with the SPAC.

The simple central concept is to combine Dyal, led by Lehman Brothers alumnus Michael Rees, and Owl Rock, formed by Doug Ostrover, who sold GSO Capital Partners to Blackstone, Marc Lipschultz, formerly at private-equity firm KKR, and Craig Packer, an ex-Goldman Sachs banker. The firms have enough in common to suggest at least a partial match.

Moreover, giants like Blackstone and KKR have successfully gathered investment funds covering different assets under one roof. But they have the resources to manage potential conflicts, and to demonstrate to investors they are doing so. For Dyal and Owl Rock, insider relationships and the overlay of a SPAC – 2020’s hottest financial product – could make the merger potential harder to see.

Breakingviews

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