Since its founding nearly four decades ago, SoftBank has pivoted from one focus to another—all while continually growing and becoming more successful. 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.
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. Today, it holds stakes in more than 400 internet companies and is best known for its interest in tech startups. As evidenced by its acquisition of Fortress Investment Group, however, the company is prepared to move into an entirely new direction.
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.”
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. 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. As part of the acquisition deal, Fortress will continue to operate independently—and it will remain headquartered in New York City.
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.
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. Although the CEO ultimately got his way, he had to make some concessions for it to happen.
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. Now that the acquisition has gone through, however, Fortress has become the first private equity firm to be delisted from the NYSE. That is reportedly fine with its top management, 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.
SoftBank has made plenty of splashes throughout its nearly 40-year history too. The biggest and most notable one 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.
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. 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.
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.