T. Rowe Price Group (TROW) inked a deal to acquire Oak Hill Advisors, L.P. (OHA) and some of its related entities for $4.2 billion to fulfill its goal of accelerated expansion into the alternative investment markets.
OHA is a leading alternative credit manager with $53 billion of capital under management as of July 31, 2021. OHA has maintained an impressive track record of risk-adjusted returns spanning its more than 30-year history and has raised $19.4 billion worth of capital since January 2020.
Per the terms of the deal, T. Rowe Price will pay OHA and certain entities $3.3 billion, comprising 74% in cash and 26% in T. Rowe Price common shares. Further, the company will pay an additional $900 million in cash, dependent on meeting certain business milestones starting in 2025. In addition, the deal price includes the retirement of OHA’s outstanding debt at closing.
Following the acquisition, OHA will become part of T. Rowe Price’s Private Markets Platform and help T. Rowe Price accelerate its expansion into the alternative investments market and tap into the potentially growing demand.
Furthermore, the addition of OHA will complement T. Rowe Price’s existing global platform and ongoing strategic investments and will enhance its distribution capabilities. (See T. Rowe stock charts on TipRanks)
The deal is expected to be accretive to earnings by a low-to-mid single-digit percentage in 2022. The acquisition is expected to close late in the fourth quarter of 2021, subject to certain regulatory approvals.
T. Rowe Price’s CEO Bill Stromberg commented, “While we are committed to our long-term strategy to grow our business organically, we have also taken a deliberate and thoughtful approach to consider adding new capabilities through acquisitions that advance our business strategy.”
He further added, “OHA meets the high bar we have set for inorganic opportunities, and their proven private credit expertise will help us meet our clients’ demand for alternative credit.”
Evercore IS analyst Glenn Schorr recently downgraded T. Rowe Price to a Hold from a Buy with the price target of $211 (3.36% upside potential).
Overall, the stock has a Hold consensus rating based on 1 Buy and 5 Holds. The average T. Rowe Price price target of $207.83 implies 2% upside potential from current levels.
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