Omni Bridgeway (ASX:OBL) has signed a framework agreement with Ares Management (NYSE:ARES) to establish a “continuation fund” (essentially a repackaging of older funds), referred to as “Fund 9”. This new fund is valued at around $600m. As part of the deal, Ares will acquire a 70% stake in Fund 9 for an upfront cash payment of approximately $310m, with Omni retaining a 30% interest.
The deal will see Fund 9 acquire Omni’s co-investment in over 150 investments from its Funds 2/3, Funds 4/5 Series I, and one remaining balance sheet investment.
Omni Bridgeway will continue as the investment adviser for Fund 9, while Ares will receive a preferred return on its 70% share of the fund’s returns.
The transaction is expected to deliver a cash multiple on invested capital (MOIC) of approximately 3.2x for Omni on its deployed capital. The deal also allows Omni to reduce its co-investment obligations from 20% to 6% on these funds and is expected to significantly enhance Omni’s liquidity position.
Of the initial $310m proceeds, $250m will be used to fully repay Omni’s outstanding debt, with the balance providing approximately $60m in additional liquidity for the company. The full settlement of Omni’s debt is expected to reduce annual interest costs by $30m.
Omni will also receive a 2% management fee on gross investment commitments outstanding in Fund 9, adding an estimated 7% to the company’s cost coverage.
Ares has an option to acquire up to a $35m equity stake in Omni through the issuance of warrants, which are exercisable at a strike price calculated based on Omni’s volume-weighted average price at the time of the deal.
Omni’s Managing Director and CEO, Raymond van Hulst, said the deal achieves all of Omni’s strategic objectives, including validating the fair value of its asset portfolio, reducing debt, and accelerating its shift to a “capital-light” funds management model.
The transaction will also simplify Omni’s financial reporting as it will no longer need to consolidate Funds 2/3 and 4 in its statutory accounts.
Financial close is expected in December 2024 or January 2025.
Shares in Omni Bridgeway have jumped following the news. They’re currently trading 39.38% higher at $1.35.