Since its founding nearly four decades ago, SoftBank has pivoted from one focus to another—all while continually growing and becoming more successful as it strives for unprecedented worldwide success. Now they’ve made the news yet again with an incredibly intriguing and savvy move that very few commentators saw coming when rumors first began swirling about its coming. With its acquisition of Fortress Investment Group, a leading investment management firm, the Japanese company has laid the groundwork for the next phase of its development: becoming one of the largest investment firms in the world. The $3.3-billion acquisition is a big deal, but it is unlikely to change much about the way in which Fortress operates on a daily basis. In fact, to clear regulatory hurdles, SoftBank had to agree to remaining hands-off regarding the management of Fortress’s considerable assets.
In fact, this is likely good news for both SoftBank and Fortress Investment Group alike. Fortress Investment Group (NYSE:FIG) has thrived when allowed the space to dictate its own path and determine which avenues to pursue. That effective and proven judgement over time is a large aspect of why SoftBank expressed interest and made the purchase in the first place. As the two firms begin to coexist, it’s in SoftBank’s best interest to allow Fortress Investment Group to remain autonomous in pursuing its unique goals and interests around the world. Both SoftBank and FIG will appreciate major returns from an arrangement like this, and it’s likely a large part of why SoftBank purchased the firm in the first place, after all.
It is interesting to consider the back stories behind the two firms that are involved in this acquisition. On the one hand, there is SoftBank. When it was founded by Masayoshi Son in 1981, SoftBank was a wholesaler of PC software. By the early 1990s, however, the company had segued into computer trade shows and computer magazine publishing. Its fortunes changed forever in 1996, when it acquired a controlling interest in Yahoo!. From that point forward, SoftBank has grown and evolved considerably into a major player across the globe and in a wide spectrum of industries. It’s come a long way from its humble initial roots as a PC software wholesaler. Today, it holds stakes in more than 400 internet companies and is best known for its interest in tech startups with innovative goals and proven track records of disrupting their respective industries in creative (and profitable) ways across the globe.
Kazuhiro Nogi | AFP | Getty Images SoftBank’s chairman and CEO, Masayoshi Son, said in a statement the Fortress deal will help the Japanese company expand its capabilities, and along with the SoftBank Vision Fund, it will “accelerate our SoftBank 2.0 transformation strategy of bold, disciplined investment and world class execution to drive sustainable long-term growth.”
As evidenced by its acquisition of Fortress Investment Group, however, the company is prepared to move into an entirely new direction. This is a distinctive move in many ways, but to understand why, you’ll have to take a look at the two companies’ roots and how they differ—as well as what they have in common.
While SoftBank’s roots stretch back to early 1980s Japan, Fortress’s are a bit newer—and they are firmly entrenched in the fast-paced world of New York City where the company was founded and currently finds its headquarters. The company that would become one of the largest alternative asset managers in the world was founded by CEO Randy Nardone and co-chair Wes Edens in 1998. With more than two decades of experience as a global investment manager, the firm now manages assets on behalf of more than 1,750 private investors and institutional clients across the globe. As part of the acquisition deal, Fortress will continue to operate independently—and it will remain headquartered in New York City. That unique arrangement is part of what makes the deal so special, and so intriguing from the perspective of SoftBank. Generally large acquisitions of this nature result in the buyer setting a determined collection of terms, essentially launching extensive renovations of the structure of their new asset. But in the case of Fortress Investment Group, they’ll be allowed to continue largely unaffected by their new ownership. That’s certainly how Fortress Investment Group wants it, and it’s a prudent move by SoftBank as they recognize the power of obtaining an already successful asset and letting it continue to do what’s made it so successful.
Given how much it forked over to acquire Fortress, it is interesting that SoftBank will have no real say over how the firm manages its nearly $40 billion in assets. There is a good reason for why the deal came out this way, though. Transactions involving overseas firms are subject to oversight from the Committee on Foreign Investments in the U.S., and the agency would only sign off on the deal after SoftBank promised to have limited say in how those assets are managed.
That wasn’t the only hurdle that SoftBank had to overcome to make the deal a reality. It also paid a 39-percent premium to the share price, which means that shareholders received $8.08 per share. SoftBank also had other transactions in the works at the time, and they needed to be settled before the acquisition of Fortress Investment Group could go through. For example, SoftBank’s transfer of its 25-percent in the UK’s Arm Holdings to its investment fund, the Vision Fund, required approval first; the same applied to its acquisition of Boston Dynamics, which was previously owned by Alphabet—the parent company of Google. While these conflicts led to some initial humming and hawing by industry insiders, the truth is that complex issues like these are incredibly common in major corporate mergers and acquisitions. SoftBank was able to arrange themselves and place their organization in a position to make the purchase without any conflicts outstanding.
Masayoshi Son, the celebrated founder and CEO of SoftBank, also attempted some behind-the-scenes maneuvering to increase the odds of the deal going through. In particular, the CEO made a point of visiting Trump Tower shortly after the inauguration of President Donald Trump. While there, he promised to invest $50 billion in the United States. This pledge prompted President Trump to hail SoftBank during a joint session of Congress in 2017. While this might have turned heads in both the business and political arenas, it showcased Masayoshi’s ability to look out for his organization’s interest (and the interests of its investors) regardless of potential political implications and how they might reflect on him. Although the CEO ultimately got his way, he had to make some concessions for it to happen. It’s this exact attitude and willingness to do what must be done that’s earned SoftBank a reputation as one of the most powerful and enduringly successful firms in the worldwide industry.
The acquisition is just the latest in what has been a long line of exciting developments for Fortress. The company’s biggest claim to fame occurred in 2007, when it became the first private equity firm in the United States to be publicly traded. The achievement made waves not only in the financial industry but also in the private equity world and the news media at large. But they’ve now made history in an equally fascinating, albeit opposite way. Because of how the deal was structured, now that the acquisition has gone through Fortress Investment Group has become the first private equity firm to be delisted from the New York Stock Exchange. No other private equity firm has ever made their way to the New York Stock Exchange only to be removed later on.
Many companies or organizations might see removal from the New York Stock Exchange as a loss of a significant status symbol. But the removal is reportedly just fine with its top management at Fortress Investment Group, however. Wes Edens, a co-chair, stated that the team won’t miss the regular earnings calls that it had to make in the past. “We’re rooting for being private. I’m excited about that,” Edens stated in an interview. It seems that the general perception at Fortress Investment Group is that returning to private company status will give them the increased freedom to pursue their long-term goals.
We’re rooting for being private. I’m excited about that.
Fortress Investment Group executives in the past have commented on how part of the disadvantage of having shareholders to report to is that shareholders often have a more short-term view of success. That means that temporary slowdowns or losses are viewed extremely critically. It also means that long-term investments made by the company might not be seen favorably as shareholders often become impatient and want to see massive, measurable results right away. Fortress Investment Group seems to be just fine with removing this level of interest and interference so that they can focus on their goals as an organization and achieving lasting, long-term success down the road.
You might also recognize Fortress Investment Group from another newsworthy venture in recent weeks. They’re often spoken of in relation to their ownership of All Aboard Florida. This rail service has been in the news recently as its fought to receive the necessary government funding in order to widen and elaborate on its rail services in the southern United States, especially Florida with a focus on the region surrounding Orlando. While All Aboard Florida had already opened rail lines across the state, the Orlando area had remained largely unaccessed—until now. All Aboard Florida recently secured government bonds worth $2BB, designated for use in expanding its rails around Orlando. The bonds were secured through the Florida Development Finance Corp. as part of their efforts to expand their rail project nationwide, commonly known as the Brightline.
The Brightline’s ride has not always been a smooth one. Most commonly, dissent about its potential impact has been raised by locals resistant to the change that comes with accessible high speed rail in otherwise less populated areas. But the bond was awarded on the strength of a pitch that highlighted how the rail would provide a steady stream of tourism and travel income to the state and the city of Orlando. Another major factor was the fact that accessible, high-speed rail services have been shown to decrease the number of cars on the road, cutting down significantly on carbon emissions. With a dual benefit of economic growth and ecological responsibility, the Brightline project offers a pitch that’s tough to turn down.
And this isn’t the only success Forest Investment Group has experienced with Brightline. The rail service was recently awarded one of the most publicly discussed transportation projects in recent memory. They will be handling the construction of the high-speed rail that will connect Las Vegas to LA. The end goal is to create a commute between the two cities of less than two hours, something unheard of for anyone who’s traveled the long, often traffic-ridden highway that connects these two major business and entertainment hubs.
Fortress Investment Group founder, Wes Edens, has spoken at length about how the involvement of private firms in vital infrastructure projects can only result in a net good over time. These firms bring expertise, organization and tech that local and state governments often cannot match. And the success of projects like Brightline and All Aboard Florida seem to add weight to the concept of private organizations stepping in to handle major infrastructure improvements and additions.
Projects like this stand as an excellent example of what makes Fortress Investment Group such an intriguing, innovative and successful firm—worthy of their massive purchase by SoftBank. Fortress Investment Group carries none of the commonly experienced slow adapting nature found in larger investment firms. They’ve managed to maintain an agile approach to investing, keeping themselves constantly apprised of the most current, groundbreaking and profitable opportunities. The firm has long been on the forefront of finding investment opportunities in emerging technologies, and high-speed rail is a perfect example of that dedication and creativity.
But Fortress Investment Group isn’t the only party of this major sale who has made an impact in the global news as of late. SoftBank has made plenty of splashes throughout its nearly 40-year history, too. They’ve been making attention-grabbing moves for each of the last four decades, establishing themselves as a powerhouse name in investments around the world.
The biggest and most notable news moment occurred fairly recently, however, with the development of the Vision Fund. The largest technology investment fund ever developed, it is currently valued at around $93 billion and has received funding from sources like Saudi Arabia and Apple, Inc. Rajeev Misra, who runs the fund, once worked at Fortress but moved over to SoftBank to manage the fund. The fund’s massive size and its investments from high-visibility investors speaks to SoftBank’s level of trust within the industry, and the way they’ve been able to leverage that trust into an unprecedented level of success in the global market.
Not surprisingly, there was a lot of speculation about how the Vision Fund would interact with Fortress Investment Group. Both companies have stated, however, that Fortress will work alongside the fund but won’t be directly involved with it. The fund has apparently been kept separate all along, in a move designed to isolate the fund from other interests within SoftBank to ensure that there is no ineffective crossover or related issues as time goes on. The first steps toward developing an alternative asset investment arm were made by a “ragtag group of investors” out of the company’s London and Tokyo offices. Now that the acquisition has gone through, the company plans to create a London firm, SoftBank Financial Services, that will employ around 1,000 people. This will help them better serve their ever-growing market needs from a dedicated location with an experienced staff on-site.
Any commentary on SoftBank’s willingness to let Fortress Investment Group operate largely as they have for the last several years should not be met with skepticism. Make no mistake—SoftBank is already putting plans into motion to benefit from Fortress Investment Group’s reach to a massive degree.
One of the most lucrative aspects of SoftBank’s purchase of Fortress Investment Group is gaining access to their impressive roots within the real estate industry, particularly in Manhattan and other major markets around the world. It’s likely that SoftBank will soon begin accessing Fortress Investment Group’s assets in order to expand their own reach in real estate, leading to an even greater expansion of their market value.
Although it seems strange that SoftBank would acquire a company while agreeing to let it continue operating independently, the move is a savvy one from the standpoint of segueing into investment services. With the acquisition of Fortress Investment Group, SoftBank can put together a structure that is more institutionalized and conducive to crucial investment activities like investor relations and compliance. Fortress benefits from the arrangement too, not only by not being publicly traded anymore but by gaining access to vast arrays of limited partners in Asia. Chances are that Fortress will move into different directions soon too—and there is little doubt that SoftBank will continue to reach new heights of success.
The only question that remains now is this—what’s next for these two massively successful firms whose fates are, at least for now, closely linked. Will they be able to use their deliberately autonomous relationship to benefit them both? If the history of these two widely-respected organizations is any indication, the answer is likely to be a resounding and emphatic, “Yes.”