Business Context and Reporting Period
Blue Owl Capital Inc. filed this Form 8-K dated October 18, 2021, reporting an agreement executed on October 17, 2021. The filing concerns Blue Owl’s proposed acquisition of Oak Street Real Estate Capital, LLC and its investment advisory business.
Transaction and Key Financial Terms
- Blue Owl agreed to acquire 100% of Oak Street’s management company earnings and 100% of the right to allocate Oak Street’s carried interest earnings on future funds.
- The aggregate closing purchase price is $950 million, subject to adjustments including differences in Oak Street’s working capital and debt at closing.
- Oak Street equityholders may generally elect to receive up to approximately 78% of their consideration in Blue Owl common units and corresponding non-economic, one-vote Class C shares.
- Up to approximately 39 million Blue Owl common units may be issued as part of the closing consideration.
- Additional earnouts may be payable upon achievement of specified performance thresholds, in cash or up to approximately 39 million additional Blue Owl common units, subject to vesting.
- The cash portion is expected to be funded with Blue Owl’s cash on hand.
Material Changes and Strategic Implications
- The transaction would expand Blue Owl’s platform into Oak Street’s real estate investment advisory business and provide Blue Owl with rights to future carried interest allocations.
- Marc Zahr, Oak Street’s co-founder and chief executive officer, is expected to join Blue Owl’s board and executive committee and become President of Blue Owl’s Oak Street division at closing.
- Mr. Zahr is expected to receive approximately 25% of his closing consideration in cash and approximately 75% in Blue Owl common units and Class C shares.
- The transaction contemplates tax receivable agreement benefits and registration rights for Oak Street equityholders receiving equity consideration.
Timing, Conditions, Risks and Unusual Items
- Closing was expected in the fourth quarter of 2021, subject to customary closing conditions.
- The Merger Agreement includes customary representations, warranties, covenants, termination provisions, closing conditions and indemnities.
- Mr. Zahr entered into a support agreement and an employment agreement that become effective at closing. He and certain other Oak Street principals are expected to execute restricted covenant agreements.
- The Blue Owl common units and Class C shares issued in the transaction will be unregistered securities issued in reliance on Section 4(a)(2) and/or Regulation D of the Securities Act.
- The filing does not provide operating revenue, profit, cash-flow, margin, debt, liquidity or guidance metrics for Blue Owl or Oak Street, nor does it quantify expected synergies or returns.
Most Important Facts to Verify
- Whether the transaction closed in the expected fourth quarter of 2021 and the final closing date.
- The final purchase price after working-capital and debt adjustments.
- The actual mix of cash, Blue Owl common units and Class C shares delivered to Oak Street equityholders.
- The number of common units issued at closing and any subsequent earnout units issued or vested.
- Oak Street’s contribution to Blue Owl’s revenue, earnings, assets under management and carried interest following closing.
- The complete Merger Agreement, including termination rights, indemnities, earnout conditions and omitted exhibits or schedules.