Buddy, want to buy a manager?

Triarc Cos. Inc. is having difficulty finding a buyer for Deerfield Capital Management LLC, an institutional alternatives manager.

After fewer than two years of owning the firm, Triarc, a New York-based holding company that also owns Arby’s Restaurant Group Inc., has started exploring its options regarding Deerfield & Co. LLC, Rosemont, Ill. Deerfield & Co. is the parent company of Deerfield Capital, which has about $13 billion under management.

Deerfield Capital is a fixed-income specialist, with about 85% of assets invested in structured debt and loan strategies; 7% in credit-related hedge funds; 6% managed in Deerfield Triarc Capital Corp., a real estate investment trust; and 2% invested in miscellaneous managed accounts, according to Triarc filings with the Securities and Exchange Commission.

Triarc acquired a 64% economic stake in Deerfield & Co. for $86.5 million in July 2004. That granted Triarc more than 90% of Deerfield Capital’s outstanding voting rights, according to a June 2004 news release announcing the deal. But by last April, Triarc was talking in its investor relations materials about its “corporate restructuring” intentions regarding Deerfield.

Kept apprised

Anne A. Tarbell, Triarc’s senior vice president, corporate communications and investor relations, said the firm has kept investors apprised of restructuring plans in recent SEC filings and investor communications, but the firm’s policy is not to discuss the process. She declined to comment about whether Triarc has decided whether to spin off, sell or otherwise dispose of its interest in Deerfield Capital.

Gregory H. Sachs, chairman and chief executive officer of Deerfield Capital, did not return two calls or respond to an e-mail request for an interview.

Nelson Peltz, Triarc’s chairman and chief executive officer, wrote in the firm’s Aug. 11 quarterly earnings statement: “We are pleased with the continued growth in Deerfield’s assets under management. Together with Greg Sachs and his team, we believe we have built much value at Deerfield since we acquired our interest … In keeping with our goal of enhancing stockholder value, and in order to unlock the potential value of both of our independently managed businesses, we are continuing to explore a corporate restructuring that may involve the spinoff to Triarc’s stockholders or other disposition of Triarc’s interest in Deerfield.”

Mr. Peltz is probably best known for the extreme activist strategy he uses to manage his hedge fund, Trian Fund Management LP, New York. Mr. Peltz tangled with H.J. Heinz Co., Pittsburgh, in a deliberately public proxy fight in 2006 that resulted in his election to the company’s board, along with another dissident shareholder.

Ms. Tarbell said Mr. Peltz would not comment on the sale of Deerfield.

One source, who declined to be identified and knows Deerfield Capital well, said senior executives there are not going to be sorry to disassociate themselves from Mr. Peltz.

Avoiding publicity

It’s not surprising that Deerfield Capital executives might want to move away from the “adverse” publicity that Triarc/Trian brings to their otherwise fairly standard investment strategy, said Jeffrey R. Nipp, director of investment manager research in the Atlanta office of Watson Wyatt Investment Consulting. “It’s possible that institutions might not want to work with Deerfield because of Triarc’s activism. I can see where corporate plans might not appreciate that,” Mr. Nipp said.

Stephen C. Vogt, chief investment officer of hedge fund-of-funds manager Mesirow Advanced Strategies, Chicago, noted that perceptions about hedge fund activism depend to a great extent on the particular brand of activist strategy being used.

“Hedge fund managers who can truly help shareholders by encouraging or even forcing management to make changes to enhance share price and the long-run efficiency of the firm are generally well-received,” Mr. Vogt said. “Alternatively, hedge funds that are focused on myopic greenmail are less well-received.”

Another source who insisted on anonymity said another reason for the sale is that Triarc executives have not been happy with the growth of Deerfield Capital. This source noted that while Deerfield Capital’s growth has been good — assets under management were only $8 billion at the time Triarc took its stake in 2004 — it isn’t spectacular when compared with competitors.

The source said Deerfield Capital’s size might actually be something of a drawback when it comes to a sale: “It’s big enough to be a significant undertaking for a buyer, but it’s kind of stuck in the middle. It might be a more palatable acquisition if it were smaller.”

The source said Triarc senior management explored spinning off Deerfield Capital to shareholders in 2006 but apparently decided this route was not viable. They then unsuccessfully sought financing for a management buyout by Deerfield executives or a recapitalization. In November, Triarc management hired Goldman Sachs & Co., New York, to sell the firm.

“Goldman Sachs has gone all over the planet to find a buyer for Deerfield Capital. They’ve really showed it to a wide range of potential buyers, from hedge funds to private equity managers, banks and insurers,” said the source.

Goldman spokesman Michael Duvally declined to comment.

Passing on firm

A third source, who also asked for anonymity, said his firm looked at, but passed on, Deerfield, partly because of the firm’s alternative investment specialization and partly because two other specialists in collateralized debt obligation investing were up for sale at the same time.

“That was a red flag for us, that a number of CDO managers were out there for sale at once,” said the source, who also expressed some uneasiness about CDO strategies. “If they’re done well, CDOs are fine, but there is principal risk. And because CDOs are basically a 50-basis-point business, it’s not that profitable, especially compared to hedge fund revenues.

“There have been a bunch of alternative managers out there for sale. And if they’re really good, they will go. But those that are smaller or have less spectacular performance likely will have a hard time selling themselves,” said the source.

Mesirow’s Mr. Vogt and several other sources also noted how hard it can be for alternative investment managers to negotiate successful sales of their companies.

“I watch these deals occur and I think one has to take each one on its own merits. Hedge fund managers are … bright, hugely competitive and, if they are looking to sell a piece or all of their business, likely have already made a sizable fortune. For this reason, I think you will see some sales not work out in the long run as these intensely entrepreneurial individuals might find it difficult working with, or reporting to someone,” Mr. Vogt added.