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SoftBank-Fortress deal turns attention to future arrangements with private equity firms

Softbank CEO Masayoshi Son
Softbank CEO Masayoshi Son

Investors are paying close attention to SoftBank Group Corp.'s pending $3.3 billion acquisition of Fortress Investment Group to see if it sparks a privatization trend among publicly traded alternative investment firms, consultants and industry observers say.

Details are scarce on SoftBank's future investment strategy involving Fortress and how it will pursue those strategies.

Fortress was one of the first private equity firms to go public and now it is going private again, noted Michael J. Moy, managing director of investment consulting firm Pension Consulting Alliance, in an email.

“The issue, as I see it, is this a one-off or the beginning of a trend?” Mr. Moy wrote. “If it is a one-off, the impact on investors should not be significant. If it is the commencement of a trend, it could be significant.”

However, without knowing Softbank's strategy and future execution of tactics to achieve that strategy, it is too early to discuss the exact impact on investors, he noted.

SoftBank is known for its technology and telecom holdings with investments in Alibaba, Sprint and Yahoo Japan, noted David Fann, president and CEO of private equity consulting firm TorreyCove Capital Partners.

SoftBank is also raising a $100 billion technology investment fund.

Fortress' business will be separate from but work alongside Softbank's “soon-to-be-established SoftBank Vision Fund platform,” said Masayoshi Son, chairman and CEO of SoftBank Group Corp. in a news release announcing the acquisition.

Sources said SoftBank is acquiring Fortress in part for its deal execution expertise and its global network of transaction sourcing.

“Understanding the strategic fit and vision between Softbank and Fortress is the hard part, and not immediately obvious,” Mr. Fann said. “No doubt Softbank has had great success with tech investments. Fortress has been an 'old school' investor — focused on basics segments like transportation, infrastructure, real estate, distressed debt.”

The three key Fortress partners appear to be sticking around, which is one vital component, Mr. Fann said. Limited partners would like to see if the other key managing directors remain on board, he added.

The three key Fortress partners — Peter L. Briger Jr. principal and co-chairman of the board of directors; Wesley R. Edens, co-founder, principal and co-chairman of the board; and Randal A. Nardone, CEO, co-founder, principal and director — have agreed to commit 50% of their after-tax proceeds from the transaction in Fortress-managed funds and vehicles “underscoring a deep alignment” of interests between Fortress investors and SoftBank investors, a joint news release noted.

“The transition from being publicly listed to private firm would reduce administrative burden on the management company, but needs to be replaced by a strong governance framework,” said Monel Amin, CEO of DiligenceVault, a technology platform for limited partner/general partner due diligence. “Founders got liquidity in this transaction, but have agreed to maintain investment in the new entity, which on the surface bodes well for alignment of interest.”

Gordon Runte, Fortress spokesman, declined to comment.