US-based private equity firm Ares Management has struck a non-binding agreement with Australian wealth manager AMP, under which it plans to create a A$2.25bn ($1.8bn) joint venture (JV) for AMP Capital’s private markets business.
In October last year, AMP secured an offer from Ares for acquisition of 100% of its shares. It was an “indicative, non-binding, conditional” bid.
However, earlier this month, Ares backed out of the buyout offer partly because of concerns regarding the declining performance of AMP’s wealth management arm.
Under the new proposal, Ares intends to take a 60% stake in AMP Capital’s private markets business for A$1.35bn ($1.06bn).
AMP will retain the remaining 40% interest, valued at A$900m, in the business under the offer.
The two parties will enter into a 30-day exclusivity period to reach a binding agreement.
Ares CEO Michael Arougheti believes that the deal will be financially accretive for its shareholders as well as “highly strategic and complementary” to the firm.
According to AMP, the proposed deal would help speed up the growth of private markets and offer immediate value to its shareholders.
Moreover, Ares’ global footprint and capabilities in credit, private equity and real estate are said to be “highly complementary” to private markets.
The private markets JV will comprise infrastructure equity, infrastructure debt, real estate, and other minority investments.
The JV would initially have ten board seats. Ares would have most of the board seats in the JV, with six nominees while AMP would have four nominees.
However, the firms stressed that the certainty of a deal materialising is still uncertain. If materialised, it would be subject to clearance from regulators, shareholders and also an independent expert’s report.
AMP has incorporated put and call options under the offer, which would enable it to offload the balance stake in the private markets business after five years.
Moreover, the wealth manager would retain AMP Capital’s public markets business and said that it is actively” exploring the sale or partnership for its global equities and fixed income business.
Speaking on the deal, AMP chair Debra Hazelton and AMP CEO Francesco De Ferrari said: “We expect it would strengthen the business and significantly accelerate our strategy to grow private markets, while de-risking our international expansion plans, and bringing forward the value in AMP Capital for our shareholders.
“The joint venture would also enable AMP shareholders to participate in anticipated accelerated growth from a business with increased global scale and capability.
“The transaction will enable AMP to increase focus on the transformation of our wealth management business in Australia, drive the continued growth of AMP Bank and New Zealand wealth management and benefit from driving further efficiency.