Blue Owl Considers Creating Industry Giant by Merging Portfolio Companies - Financial Times

According to a report based on four sources familiar with the matter, billionaire dealmaker Michael Rees is exploring the possibility of merging three to five companies in Blue Owl's portfolio to create a major player in the industry. The proposed merger would encompass various sectors, including private equity buyouts, credit-based investments, infrastructure deals, and real estate.

Blue Owl was established through the merger of Dyal Capital, founded by Rees in 2021, with credit investor Owl Rock Capital and a publicly listed SPAC. The firm holds stakes in private infrastructure groups such as Stonepeak and I Squared Capital, along with large infrastructure-like portfolio firms like Bridgepoint. Blue Owl also maintains minority stakes in firms such as Vista Equity Partners, Silver Lake, HIG Capital, Platinum Equity, Cerberus, and Clearlake Capital. The firm will not participate in a potential merger.

Although Rees's proposal is still in its early stages, it underscores the ongoing consolidation in the alternative investment market. Senior dealmakers in the sector are increasingly being pressured to decide between focusing on a few key strengths or joining larger publicly traded financial groups.

Last week, Blue Owl's portfolio company BlackRock acquired credit manager HPS for $12 billion, prompting many firms to reevaluate their strategies. Among executives, there is growing concern that the sector will be controlled by a few diversified organizations capable of attracting new capital from a range of sources, from large sovereign wealth funds to individual investors and potentially retirement savers.

In October, Goldman Sachs executive Michael Brandmeyer warned that many independent private equity groups are underestimating the cash flow issues and challenges arising from succession processes posed by larger players. He referred to these groups as "zombie firms," indicating that they are unaware of the implications of their last fund investments.

Despite the ongoing changes in the private equity sector, advisors note that deal discussions rarely transform into transactions due to concerns over conflicting strategies and personalities. As one private equity manager close to Blue Owl stated, Rees's proposed merger would be an "equity merger" involving different valuations across sectors and some overlaps, presenting a complex yet potentially beneficial move.