(Bloomberg) -- Carlyle Group Inc. agreed to buy Todd Boehly's investment shop for $787.2 million, wagering that investor appetite for higher yields from credit will turbocharge growth.
The purchase of CBAM Partners will make Washington-based Carlyle the largest manager of collateralized loan obligations with some $48 billion of such assets. Carlyle shares rose as much as 5.7% in New York trading.
The acquisition reflects Chief Executive Officer Kewsong Lee's push to find new sources of recurring fees to counter more volatile market-driven profits. Since rising to head the firm in 2020 with co-CEO Glenn Youngkin's exit, Lee has asked Carlyle executives to keep broadening its businesses lines beyond private equity.
Of particular focus for Lee has been the expansion of its global credit group, which has been the fastest growth segment in the past four years for the firm and had $73 billion in assets as of Dec. 31. Last month, Carlyle agreed to purchase iStar Inc.'s net lease business for about $3 billion in enterprise value.
But credit assets were just under half the assets managed by Carlyle's private equity arm at the end of 2021 and Carlyle shares have lagged behind two of its main rivals. The stock has declined 25% this year through March 8. By contrast, Apollo Global Management Inc. and Blackstone Inc. are down 17% and 16%, respectively.
“We are five and a half years into our growth strategy and this isn't the end,” Mark Jenkins, Carlyle's head of global credit, said in an interview Wednesday. “We are starting to accelerate into the growth we always knew we could deliver for the firm.
On a conference call with analysts in February, Lee outlined his ambitions, saying Carlyle is “looking for strategic adjacencies in big and scalable strategies.”
At the same time, Lee has told associates that he wants to bring more focus and discipline to Carlyle's mergers and acquisitions strategy, said people familiar with the matter. The strategy has not been as targeted in the past as he would like it to be, the people said.
As part of the deal, Carlyle is also acquiring other CBAM assets in private credit, according to a statement issued Wednesday. Bloomberg previously reported that Carlyle and CBAM had entered into exclusive merger talks.
Boehly, a former Guggenheim president, founded Eldridge Industries, CBAM's majority owner, in 2015. Over the last several years, he has built an empire that has invested in everything from the Los Angeles Dodgers to music catalogs.
CBAM has issued more than $12 billion of CLOs since its founding six years ago by Don Young, Mike Damaso and Jay Garrett. The firm has the backing of Security Benefit, a provider of annuity and other retirement products that's also part of Eldridge and an investor in CBAM's CLOs.
The transaction is expected to close in the first half of this year. BofA Securities is advising CBAM and Weil, Gotshal & Manges LLP is its legal advisor. Latham & Watkins is the legal advisor to Carlyle.
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