REG - Man Group plc - Man Group to acquire Varagon Capital Partners

ManAnnouncement

06/07/2023 07:00

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RNS Number : 1159F  Man Group plc  06 July 2023

Contains inside information

MAN GROUP PLC

MAN GROUP TO ACQUIRE VARAGON CAPITAL PARTNERS

 

London, 06 July 2023 - Man Group plc ('Man Group' or 'The Company') today
announces it has entered into an agreement (the 'Acquisition Agreement') to
acquire a controlling interest in Varagon Capital Partners, L.P. ('Varagon'),
a leading U.S. middle market private credit manager with $11.8bn of assets
under management ('AUM') and $15.4bn of total client commitments(1).

 

Founded in 2014, Varagon is a leader in the core U.S. middle market, having
completed $24.5bn of financings to over 300 companies and 138 sponsors(2). The
firm focuses on senior secured loans with multiple covenants to cash
generative, high-performing sponsor-backed companies in non-cyclical
industries, and typically serves as a lead or co-lead lender, with origination
capabilities that support enhanced terms and differentiated returns for
investors(3). Varagon offers this strategy through a range of market-validated
investment vehicles, including separately managed accounts, private funds, and
rated note products.

 

Upon completion of the transaction, Walter Owens, CEO of Varagon, will
continue to manage the Varagon business, supported by its existing 88 team
members across offices in New York, Fort Worth and Chicago. Varagon's
investment committee, investment team and investment processes will remain
unchanged, and the firm's access to new investors will be bolstered by Man
Group's global distribution.

 

Varagon's strong and experienced management team and high-quality,
sophisticated client base, with a particular emphasis on the insurance
channel, bring significant institutional credibility to support Man Group's
growth in U.S. private credit. The acquisition will enhance Man Group's
investment capabilities, equipping the firm with a complementary U.S.-focused
direct lending strategy designed to provide consistent risk-adjusted
outperformance. Crucially, Varagon brings the ability to deploy these
investment capabilities at scale in a customisable format to the world's
largest institutional investors.

 

Eric Burl, Head of Discretionary at Man Group, said: "This acquisition
reflects our long-term strategy to move into new market segments where we can
differentiate ourselves with talented, specialised teams. Man Group has built
a rich and diversified credit offering to date, and as client demand for
credit strategies is increasing, we see a significant growth opportunity in
direct lending, particularly against the backdrop of regional banking
difficulties in the U.S. This transaction enhances our ability to provide
deep, fundamental credit expertise through a cycle, underpinned by risk
management of the highest quality."

 

Robyn Grew, Incoming CEO at Man Group, commented: "We are thrilled to have
Varagon join Man Group as an additional investment engine. This acquisition is
indicative of our commitment to diversifying our client offering and our
strategic expansion ambitions in the U.S. Varagon has built a high-quality
investment platform and shares our vision to deliver outperformance for
clients. Our extensive distribution network and operational expertise will
support Varagon with its continued growth and delivery for clients, and we
very much look forward to working with such a strong team."

 

Walter Owens, CEO at Varagon, said: "We are excited to be joining Man Group, a
world-class investment firm with global distribution capabilities, a strong
brand and infrastructure, and a like-minded, collaborative culture. Man
Group's deep experience building bespoke solutions for clients and
best-in-class technology will help us to better serve our clients and further
reinforce our position as a differentiated capital solutions provider in the
core middle market. The private credit market continues to grow in relevance
for many investors, and fundamental credit analysis and disciplined
underwriting skills will come to the fore as the environment for borrowers in
the U.S. becomes more challenging. We believe a combination of Man Group and
Varagon will enable us to preserve our proven investment process while helping
us scale our suite of products and continue to deliver compelling results to
our clients and sponsor partners."

 

The U.S. middle market is one of the world's largest, with over 200,000 middle
market companies generating one third of U.S. private sector GDP(4). U.S.
pension fund allocations to private credit stood at $3.2 trillion in 2022,
representing 3.6% of total allocations compared with 2.1% in 2017(5).

 

Transaction structure and financial information

Under the terms of the Acquisition Agreement:

i.        At completion, Man Group will pay $183m in cash to selling
interest holders Aflac Inc. ('Aflac', NYSE: AFL), Corebridge Financial, Inc.
('Corebridge', NYSE: CRBG), American International Group, Inc. ('AIG', NYSE:
AIG), and former members of Varagon's management team.

ii.        The cash consideration will be funded using existing
internal resources. It will be subject to a closing balance sheet adjustment
reflecting any excess or deficit against a minimum working capital target.

iii.       Aflac, Corebridge and AIG, which account for over half of
Varagon's client commitments, have agreed to continue their existing
multi-year investment management agreements. Subject to maintaining a
predetermined level of capital commitments over a nine-year period, extension
payments of up to $93m in total will be payable in cash to Aflac, Corebridge
and AIG.

iv.       Varagon's management team will roll all of its existing 27%
interest into a structure that ensures long-term alignment with the combined
business; Man Group and management will have a reciprocal put / call option
over the residual stake at fair market value in years 8, 9 and 10, subject to
certain conditions.

 

Varagon has delivered compound AUM growth of 13% over the three years to 31
December 2022. In 2022, Varagon generated total revenues of $116.3m and profit
before tax of $30.9m. Total gross assets were $165.8m in December 2022. These
figures have been extracted from the audited accounts of Varagon for the year
ended 31 December 2022, which have been prepared in accordance with U.S. GAAP.
Man Group expects the transaction to be meaningfully accretive to management
fee and total EPS in the first full year following completion.

 

Wells Fargo Securities is acting as lead financial advisor and Willkie Farr
& Gallagher LLP is acting as legal advisor to Man Group and/or its U.S.
affiliates. Rothschild & Co. Inc. is acting as lead financial advisor and
Davis Polk & Wardwell LLP is acting as legal advisor to Varagon.

 

The transaction is subject to regulatory approvals and is expected to complete
in Q3 2023. On completion, Varagon will become known as Man Varagon. The
proposed acquisition of Varagon is a Class 2 transaction pursuant to the UK
Listing Rules. This announcement contains inside information and the person
responsible for arranging the release of this announcement on behalf of Man
Group is Elizabeth Woods, Company Secretary.

 

Notes to editors

(1) $11.8bn of fee-paying assets under management and $15.4bn of total client
commitments including leverage at December 2022

 

(2) From Varagon's first investment in August 2014 to December 2022

 

(3) In the twelve months to September 2022, the firm was lead or co-lead
lender on 91% of its transactions. Varagon's annualised default rate since
inception is 0.05% in comparison to 1.6% for the Cliffwater direct lending
index and 1.7% for the LCD S&P / LSTA leverage loans index

( )

(4) Rothschild and Co: Why the US middle market is attractive for Private
Equity Investors
(https://www.rothschildandco.com/en/newsroom/insights/2022/09/en-wm-why-the-us-middle-market-is-attractive-for-private-equity-investors/#:~:text=The%20%22middle%20market%22%20%E2%80%93%20or,employing%20roughly%2050%20million%20workers.)

( )

(5) P&I: Institutions boost exposure to private credit
(https://www.pionline.com/alternatives/institutions-boost-exposure-private-credit-despite-risks#:~:text=U.S.%20public%20pension%20plans%20representing,consultant%20and%20manager%20Cliffwater%20LLC)

 

 

Enquiries

Karan Shirgaokar, Head of Investor Relations

Tel : +44 20 7144 1434

investor.relations@man.com (mailto:investor.relations@man.com)

 

Elizabeth Woods, Company Secretary

Tel: +44 20 7144 1733

company.secretarial@man.com

 

Man Group Communications

Georgiana Brunner, Head of Communications

Tel: +44 7408 846156

Media@man.com

 

Rebecca Hooper

Tel: +44 7513 712636

 

Robin Pertusi (US)

Tel: +1 212 649 6859

 

FTI Consulting (Man Group PR advisors)

Neil Doyle

Tel: +44 7771 978220

man@fticonsulting.com

 

Ambrose Fullalove

Tel: +44 7970 982748

 

Gasthalter (Varagon PR advisors)

Amanda Shpiner / Sam Fisher

Tel: +1 212 257 4170

varagon@gasthalter.com

 

About Man Group

Man Group is a global, technology-empowered active investment management firm
focused on delivering alpha and portfolio solutions for clients. Headquartered
in London, we manage $144.7bn* and operate across multiple offices globally.
We invest across a diverse range of strategies and asset classes, with a mix
of long only and alternative strategies run on a discretionary and
quantitative basis, across liquid and private markets. Our investment teams
work within Man Group's single operating platform, enabling them to invest
with a high degree of empowerment while benefiting from the collaboration,
strength and resources of the entire firm. Our platform is underpinned by
advanced technology, supporting our investment teams at every stage of their
process, including alpha generation, portfolio management, trade execution and
risk management. Our clients and the millions of retirees and savers they
represent are at the heart of everything we do. We form deep and long-lasting
relationships and create tailored solutions to help meet their unique needs.
Man Group plc is listed on the London Stock Exchange under the ticker EMG.LN
and is a constituent of the FTSE 250 Index. Further information can be found
at www.man.com (http://www.man.com/) .

 

*As at 31 March 2023. All investment management and advisory services are
offered through the investment "engines" of Man AHL, Man Numeric, Man GLG, Man
Solutions / FRM and Man GPM

 

About Varagon Capital Partners

Varagon Capital Partners is a private credit manager, specializing in secured
first lien and unitranche loans to performing, private equity-backed, U.S.
middle market companies. With offices in New York, Chicago and Fort Worth,
Varagon cultivates relationships with private equity sponsors to directly
source financing opportunities, providing flexible, reliable capital solutions
to borrowers. As of December 2022, Varagon Capital Partners has approximately
$11.8bn in assets under management and $15.4bn of capital commitments. Since
its inception in 2014, the firm has invested more than $24.5bn in middle
market loans. For more information, please visit www.varagon.com
(https://gbr01.safelinks.protection.outlook.com/?url=http%3A%2F%2Fwww.varagon.com%2F&data=05%7C01%7CRebecca.Hooper%40man.com%7Cccdeb4bc9d5c4ce700a208db7cc17e4c%7Cf771e26b93bc4bbe8f6b7cd560ce9350%7C0%7C0%7C638240942714626982%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=F1jwobbsdniZAjytOfzCj4RbGtFxSb7KshVOuGpa96c%3D&reserved=0)
or follow us on LinkedIn
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Forward looking statements and other important information

This document contains forward looking statements with respect to the
financial condition, results and business of Man Group plc. By their nature,
forward looking statements involve risk and uncertainty and there may be
subsequent variations to estimates. Man Group plc's actual future results may
differ materially from the results expressed or implied in these forward
looking statements.

 

The content of the websites referred to in this announcement is not
incorporated into and does not form part of this announcement. Nothing in this
announcement should be construed as or is intended to be a solicitation for or
an offer to provide investment advisory services.

 

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