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The co-founder of private capital investment firm Blue Owl is seeking to engineer a multiway merger to create a diversified alternative investment giant in the mould of Blackstone and KKR that he could ultimately take public.
Michael Rees, whose firm pioneered a strategy of buying small minority stakes in fast-growing private capital groups, has been sounding out potential partners for a deal that would combine specialists from different fields to create an industry heavyweight, according to four people familiar with the matter.
The billionaire dealmaker has pitched a tie-up of between three and five firms within Blue Owl’s portfolio which would span private equity buyouts, infrastructure deals, credit-based investments and other sectors such as real estate.
Blue Owl, which was formed through the merger of Rees’s Dyal Capital with credit investor Owl Rock Capital and a public Spac during the boom in 2021, holds stakes in private infrastructure groups including Stonepeak and I Squared Capital and those with large infrastructure-like portfolios such as Bridgepoint.
It also holds minority interests in Vista Equity Partners, Silver Lake, HIG Capital, Platinum Equity, Cerberus and Clearlake Capital, among dozens of holdings. Blue Owl would not be part of any merger.
“I would be very surprised if we would not have this [tie-up] come to fruition in the next 24 months,” said one private capital executive familiar with Blue Owl.
Blue Owl and Rees declined to comment.
Although Rees’s proposal is understood to be at an early stage, his plan nonetheless underscores the shift taking place in the alternative investment market which is rapidly consolidating.
The industry’s top dealmakers are being forced to choose whether to stay private and specialise on a few principal strengths, or become part of bigger publicly listed financial groups.
A wave of merger activity that culminated with BlackRock’s $12bn purchase last week of credit manager HPS — a Blue Owl portfolio company — has pushed many firms to revisit the strategy.
Some executives now fear that the industry’s power will increasingly be driven by a handful of diversified players that have scope to attract new money from investors ranging from large sovereign wealth funds to wealthy individual investors and eventually retirement savers.
In October, Michael Brandmeyer, an executive at Goldman Sachs, warned that many independent private equity groups were underestimating the impact of the torrent of cash flowing to larger players, as well as challenges from succession processes.
“There’s a lot of disruption happening in the [private equity] industry, but it’s not really apparent from the surface . . . I like to say that there are a lot of private equity firms right now that are investing their last funds. They just don’t know it yet,” Brandmeyer said, dubbing such groups as “zombie firms”.
However, advisers said that deal talks — whether between peers or with a larger asset manager such as BlackRock — still rarely culminated in transactions because of fears over clashing strategies and personalities.
“It is a people business,” one private capital executive close to Blue Owl said. The tie-up floated by Rees would be “a merger of equals, [with] different valuations in different sectors with some overlap . . . It is not an easy thing. It is in principle a good idea.”
