A tripartite merger that would create one of the largest publicly traded investment groups in the United States has opened a rift on Wall Street over some of the burgeoning private capital industry’s most closely-kept secrets.
The dispute centers on Dyal Capital, a division of US asset manager Neuberger Berman which specializes in the purchase of minority stakes in other private investment groups – a company that gives Dyal access to internal information of its partners.
Some of these companies are now up because Dyal merged with Owl Rock Capital, a leading provider of debt financing for debt buyouts, in a $ 12.5 billion deal through a special purpose acquisition company.
Two other private equity groups that sold stakes to Dyal went to court to block the deal, alleging it would create a competitor with sensitive information about their operations and even enter some of their internal rulings.
“Dyal threatens to compete with Golub while retaining a partnership interest in it,” Golub Capital said Tuesday in a case filed in the New York State Supreme Court, saying the merger was “untenable and prohibited.” pursuant to its 2018 share sale to Dyal.
The trial follows a similar action in Delaware last week by another private credit group, Sixth Street Partners, which told a state court it had sold a stake “on the understanding that Dyal would act as a partner – not as a competitor”.
“We honor our agreements and we expect our partners to do so too,” Sixth Street co-founder Joshua Easterly told analysts last week. “In this case, Dyal didn’t.
The purchase of stakes in private equity groups has been a lucrative deals for former Lehman Brothers bankers, including Michael Rees and Sean Ward, who formed Dyal in 2011. These deals have also enabled hundreds of leading private equity partners to withdraw some of their equity at valuations eight or nine digits.
But Dyal’s special relationship with some of his partners fell apart after he revealed in December his intention to team up with Owl Rock. Like Golub, which manages $ 35 billion, and Sixth Street, with more than $ 50 billion in assets, Owl Rock is part of a new generation of “direct lending” companies that have supplanted banks as major lenders to privately owned companies.
The merged company would go public by merging with a Spac set up by HPS Investment Partners, another Wall Street lender. Dyal, in turn, owns minority stakes in Owl Rock and HPS.
With a valuation of $ 12.5 billion, the merged company – dubbed Blue Owl – would rank alongside Carlyle Group and Ares Management as one of the largest listed private equity groups. Neuberger plans to sell some of its Dyal shares and is expected to reap more than $ 1 billion from the deal.
Private equity groups are generally cautious about granting stakes to anyone other than their own partners, and often require consent rights if an investor like Dyal seeks to sell their stake to another owner.
But Dyal executives never considered giving its partner companies what amounts to a veto over their own strategic initiatives, according to people close to their thinking.
In a letter to Dyal investors that the company released on Wednesday, Rees expressed concerns about the handling of its partners’ secrets, saying Dyal had “developed a robust and comprehensive information control policy designed to restrict the access to confidential information of partner managers ”.
In court documents filed in Delaware, Dyal suggested Sixth Street had misunderstood its contract or was using the controversy to extract concessions. Sixth Street, he said, had “orchestrated a one-sided and deceptive media campaign. . . in an effort to strengthen [one of Dyal’s funds] to sell its stake in Sixth Street at a totally unfair price ”.
Dyal said in the letter released on Wednesday that pension funds and other backers were supporting the Spac transaction. “We receive the consents of investors,” he said.
And investment groups always seem ready to take Dyal’s money. As recently as December, he struck a deal with venture capital firm New Enterprise Associates, “Dyal’s largest minority stake to date,” he said.