Deerfield Capital Management's senior staff will stay following Triarc Companies investment in the Chicago-based CDO manager. Gregory Sachs, ceo, Scott Roberts, president, and Jonathan Trutter, cio, will remain in their current roles. As first revealed by LMW last month, billionaire Nelson Peltz's Triarc was close to taking a major stake in Deerfield, which has more than $8 billion in assets under management (LMW, 6/7).
Triarc has since bought a 64% economic interest in Deerfield for $86.5 million and will invest $100 million to seed a new multi-strategy hedge fund. Calls to Deerfield were referred to Roberts, who did not return them by press time. According to sources, Deerfield had been looking for liquidity for more than a year, partly because Sumitomo Life Insurance Co., which had acquired a 20% stake in the firm in 1999, wanted out of its investment. The purchase price represents an enterprise value for Deerfield of approximately $145 million.
. . . Could Spell Merger Mania For CDO Mart
The collateralized debt obligation market has matured to the point where a wave of manager mergers may materialize, according to Bond Week, an LMW sister publication. Several CDO professionals said Triarc's acquisition of Deerfield could spark mergers among other experienced managers and outsiders looking to get a piece of the CDO business.
"I think it could be the tip of the iceberg," said Larry Penn, managing director at Ellington Management Group in Old Greenwich, Conn., which has closed six CDOs in its Duke Funding program. "There could be a lot of combinations that make sense," he said, referring to outside investors that could bring synergies, in addition to cash, to CDO managers. He said Ellington, which one outsider tipped as a suitable candidate given its independent management structure and solid track record, has not been approached by any buyers but in theory would consider such an offer.
Already this year, David L. Babson & Co. acquired London-based Duke Street Capital Debt Management (LMW, 3/26) and Highland Capital Management bought the bank loan business of Columbia Management Advisors (4/14). Furthermore, Octagon Credit Advisors was put up for sale by J.P. Morgan Partners, until management decided on a buyout.
Typical CDO management fees of 40 basis points, compared to roughly 17 basis points for traditional asset management, make the CDO business an attractive one for outsiders to get in to. Among potential targets, ZAIS Group might make a suitable candidate given it has built a niche for itself in the CDO squared market, mused two outsiders. But Christian Zugel, president, dismissed any speculation. "We are very comfortable to be independent and fail to see the benefit of such M&A activities," he responded in an e-mail.
A merger would probably only make sense for independent shops with CDO backgrounds and not for larger asset management firms with strong CDO franchises such as TCW and Putnam Investments, according to professionals.