Blue Owl Capital Makes A Promising Strategic Acquisition (NYSE:OWL)

Introduction

I covered Blue Owl Capital (NYSE:OWL) in a very recent Seeking Alpha piece. The company has been riding a wave of impressive and consistent successes based on a formidable strategy and aggressive execution. OWL’s leadership is bold and confident, optimistic and strategic minded.

In the previous article, I emphasized the strength of OWL management and the importance of good management in potential investment targets:

“I think that Blue Owl’s management qualities shine above all, enabling a sound and enduring strategy that is also adaptive… Investors generally do not pay enough attention to leadership in the companies they evaluate.”

OWL is building toward the status of a private lending giant with tremendous assets under management – AUM. OWL operates in three distinct segments and appears shareholder friendly. That includes a commitment to raising its dividend strategically and generously.

Kuvare Asset Management Acquisition

The OWL strategic story includes the just-announced decision to acquire the asset management portion of Kuvare Insurance Services – known as Kuvare Asset Management. This acquisition is clearly synchronistic and significantly increases OWL’s AUM (assets under management). OWL also is investing in KAM, purchasing $250 million in KAM preferred shares.

Some details on the acquisition:

Blue Owl Capital will acquire Kuvare Insurance Services LP (Kuvare Asset Management) (KAM) for $750 million. Kuvare, a top 20 US fixed and indexed annuity writer, operates in various insurance and reinsurance businesses. The deal is expected to close in the second or third quarter of 2024.

KAM, the OWL acquisition target, provides asset management services to the insurance industry, including Kuvare UK Holdings. The acquisition will be funded three ways – via $325 million in cash, $425 million in Blue Owl Class A common stock, and a $250 million maximum earnout*, subject to certain adjustments and the achievement of future revenue targets. Note: An earnout is a contractual arrangement between a buyer and seller in which part or all of the purchase price is paid out when the target firm achieves predefined financial and/or operating milestones following transaction completion.

The earnout component of the acquisition both protects OWL in case of disappointing performance and motivates KAM to perform as well as possible. I believe OWL expects KAM to achieve the goals specified, which in turn should strengthen Blue Owl’s portfolio.

The acquisition is expected to add up to $20 billion in AUM for Blue Owl and support the launch of Blue Owl Insurance Solutions. Blue Owl and Kuvare also signed investment management agreements that allow Blue Owl to deploy up to $3 billion of KAM assets across existing OWL credit, GP Strategic Capital, and real estate investment platforms.

Specific benefits for OWL include:

• A considerable jump in assets under management.
• Enhancing the brand via an intelligent acquisition.
• Visible execution of its coherent strategy.
• Creating a new insurance wing – Blue Owl Insurance Solutions.
• A substantial increase in Blue Owl’s permanent capital base.

As I noted in my previous piece, OWL premises its operations on such permanent capital:

“Predominant use of mostly permanent capital and avoidance of riskier instruments such as carry…”

For investors, this acquisition ought to strengthen the company’s shareholder-friendly approach. Co-CEO Marc Lipschultz highlighted this emphasis in a recent CNBC interview:

“…Robust growth has allowed us to return significant capital to our shareholders. And today, we announced our annual fixed dividend for 2024 of $0.72, or $0.18 per quarter. This dividend represents a 29% step-up from 2023, which follows a 22% dividend increase from 2022.”

The KAM acquisition is entirely consistent with encouraging investors both in terms of share price performance and exceptional, rapid dividend growth.

KAM: An Acquisition Offering Synchronicity

Some notes from the Kuvare Asset Management website also shine a light on its organization, scope and strategies:

“As the investment manager of Kuvare, KAM oversees all investment activities for Kuvare’s operating companies.”

Kuvare provides insurance, reinsurance, and asset management solutions. The firm delivers its retail solutions, with a focus on annuity and additional asset accumulation products, to the U.S. market and institutional solutions to a wide range of global clients.

Kuvare companies includes Lincoln Benefit Life Company, Guaranty Income Life Insurance Company, United Life Insurance Company, Kuvare Life Re, and the Kuvare Asset Management (KAM) adviser entities.

The asset management portion of Kuvare (KAM) being acquired by OWL has a similar structure. Remember that OWL focuses on three investment platforms, shown here:

KAM organizes its investment platform similarly, dividing it into:

*Private asset-based finance and structured credit

*Private corporate credit

*Commercial real estate debt

The existence of synchronicity boosts the prospects that KAM being merged smoothly into OWL’s corporate structure, management strategy and execution.

Conclusions

OWL appears to be that rare company that mixes a very creative, skilled and confident management with an intelligent boldness. Its leadership is exceptional and a major reason for my confidence in OWL’s future.

I believe that the KAM acquisition is a very strong move that accentuates Blue Owl Capital’s strengths and reinforces its strategies. It’s illustrative proof of the company’s plans to become a finance industry power player.

Growth – and shareholder contentment – will depend on company performance, which I believe will be helped considerably by the benefits of this acquisition.

The additional capital and the opportunity to plug into Kuvare’s insurance industry expertise ought to turbo charge Blue Owl Insurance Solutions. A thriving insurance company within an evolving conglomerate will provide a cash source for future investments/acquisitions and any short-term needs or emergencies.

I believe that OWL – despite its strong run – is a Strong Buy for long-term investors. It’s poised for continued explosive growth in revenues, profits, share price and dividends. I’m adding to my own OWL investment and possess real faith in the company’s future.