SoftBank’s Unusual Entry to Private Equity


February 15, 2017

The Japanese conglomerate SoftBank announced on Tuesday it’s buying Fortress Investment Group. The American private equity giant is an unusual purchase for the company, which has previously focused mainly on technology and telecommunications holdings.


Reuters reported the deal to be worth $3.3 billion. The deal will provide shareholders of the private equity firm $8.08 per share. This is a premium of 38.6%. The announcement helped increase the private equity firm’s stock price by 6.5%.


Fortress Investment Group had $70 billion worth of investments currently in its portfolio. The sale to a Japanese company is not completely unusual on its part, as the fund has been one of the rare global foreign investors targeting Japanese assets. It’s known for its hotel purchases in Japan. The firm bought a number of hotels held by Lehman Brothers in the country after the bank collapsed in 2008. Its current investments under management include real estate companies, as well as hedge funds.


According to the companies, the private equity firm’s principals will continue to lead investments. Fortress Investment Group will also operate as an independent business within SoftBank. The New York Times reported the deal will also free up Peter L. Briger Jr. and Wesley R. Edens of Fortress Investment Group “to focus on their strengths as fund managers”.


Aiming to become the largest private equity fund


SoftBank’s founder Masayashi Son has started looking into the sector ever in recent months and Son’a ambitions are high. In the statement, Son said the purchase would “accelerate our SoftBank 2.0 transformation strategy of bold, disciplined investment and world-class execution to drive sustainable long-term growth.” The company is still mostly known for its technology operations, in which it is one of Japan’s most formidable companies.


The move is likely to strengthen SoftBank’s other new endeavour: the launch of a $100 billion technology investment fund. The company announced this fund in October and it sees SoftBank teaming up with Saudi Arabia.


While the sale took many by surprise, analysts understand the potential value of entering the market. Gerhard Fasol, a consultant at Tokyo-based Eurotechnology, told Reuters, “Son’s strategy appears to be to use Fortress’s know-how to move from debt financing to private equity. It’s a logical progression for the company.”


Fortress Investment Group is likely going to work in harmony with SoftBank’s Saudi-Arabia fund. It does open more doors for the fund to invest in global markets like the Middle East, which hasn’t been a focus previously.


The deal is expected to close by the end of the year. The terms of the deal will also allow SoftBank to bring in partners, which can help fund the deal as well as possibly invest in Forest Investment Group and increase its assets under management.

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