Complementary cultures, both highly focused on fixed-income investment, helped seal the deal between alternative credit manager BlueMountain Capital Management LLC and Assured Guaranty U.S. Holdings, a subsidiary of Assured Guaranty Ltd., a financial guaranty insurance company.
Both companies had been searching for a strategic partner for some time: New York-based BlueMountain met with a dozen potential buyers earlier this year while Assured Guaranty screened asset managers for three years.
"BlueMountain is highly complementary to our skill set. BlueMountain invests more in corporate bonds and we invest more in (municipal bonds), but our credit cultures are very similar," said Dominic J. Frederico, president and CEO of Assured Guaranty Ltd., Hamilton, Bermuda, in an interview.
Assured Guaranty announced its intention to acquire the outstanding equity of BlueMountain Capital for approximately $160 million in a deal expected to close late this year.
As part of the deal, Assured Guaranty will buy the 54% equity stake in BlueMountain now held by Affiliated Managers Group Inc., West Palm Beach, Fla., for $91 million in cash, an AMG news release said.
Additionally, Assured Guaranty will invest $500 million from its insurance company subsidiaries' portfolios in BlueMountain strategies over the next three years and will provide $60 million in working capital to the firm at closing and an additional $30 million within a year of the closing.
BlueMountain managed a total of $19.3 billion in alternative credit-oriented strategies as of July 1, of which $11.9 billion was managed in collateralized loan obligations; $3.9 billion in credit opportunity funds and $3.5 billion in credit hedge funds.
Assured Guaranty provides financial guarantees to investors in some of the same sectors in which BlueMountain invests, such as asset-backed securities, including CLOs, student-loan-backed and auto-loan-backed debt, and public finance, including municipal bonds.
As insurers increasingly outsource investment management, Mr. Frederico said the goal of bringing an experienced credit and structured finance asset manager in house is to diversify Assured Guaranty's core business. Adding a fee-based business will increase revenue sources because the insurer's fees are risk-based. Diversifying the firm's investment portfolio also will improve risk-adjusted returns.
Another advantage of the acquisition is the opportunity to offer existing insurance clients access to BlueMountain's suite of credit-oriented strategies. The two firms serve similar asset owners, including pension funds, sovereign wealth funds and mutual funds, Mr. Frederico said.
Issues such as whether BlueMountain will continue to operate independently under its own name remain to be resolved, Mr. Frederico said.
That said, the integration of BlueMountain will be accretive to Assured Guaranty because "we really are in different fields, despite having similar clients and commonality in what we do. We do insurance and they manage funds," Mr. Frederico said.
BlueMountain's 140 employees will become Assured Guaranty employees after the deal is done; staff reductions are not planned.