Oaktree buys stake in healthcare investor

Oaktree Capital Management has furthered its franchise expansion with the acquisition of a minority stake in fellow alternative fund manager MTS Health Partners. Passive investments in private equity firm management companies have, until now, been most conspicuously pursued by large institutional investors. The activity has primarily involved pensions and sovereign wealth funds buying into mega buyout firms, as evidenced by last week’s news that the California Public Employees' Retirement System paid an estimated $275 million for a 10 percent stake in Silver Lake.

The amount Oaktree paid for a minority percentage of the New York-based, healthcare-focussed private equity firm was not disclosed, though the firms said in a statement that Oaktree’s “small minority investment” will be used as growth capital for expansion of MTS’ merchant banking platform.

“We share the view that marrying premier intellectual capital with long-term value-oriented financial capital solely dedicated to the healthcare industry will create significant value for our clients and our investors,” Curtis Lane, MTS founder and senior managing director, said in a statement.

The investment continues a long relationship between the two firms, added Mike Harmon, Oaktree managing director. Los Angeles-headquartered Oaktree has been both an MTS limited partner as well as co-investor in its deals. In September 2007, the firms added on pediatric homecare services provider Links2Care to their jointly-owned portfolio company, Loving Care Agency, creating a company with annual revenues exceeding $100 million. And last April, the two groups bought a majority stake in imaging services provider Alliance Imaging from Kohlberg Kravis Roberts in a deal valued at $153 million.

Oaktree has been liberally expanding its own platforms, which currently manage some $50 billion in assets, since last June – a time frame that, due to debt market turbulence, has for many firms been synonymous with slowed activity.

Howard Marks

In June, the firm became the first to trade on Goldman Sachs’ private exchange, raising more than $800 million by selling a 14 percent stake in its management company to some-50 institutional investors. In a memo to staff, Oaktree co-founder and chairman, Howard Marks, said he expected many of their “most significant competitors” would soon become publicly traded. “Whether we like it or not, we must respond to this trend. Choosing not to do likewise would put as at a major disadvantage,” he said. Apollo Management soon followed suit, also listing on the Goldman exchange.

Summer 2007 was also marked by fundraising for the firm. It began raising a $4 billion hung bridge fund, specifically to buy LBO debt that underwriting banks were unable to syndicate, in addition to raising a $3.5 billion fund that will make both distressed-for-control investments and more traditional private equity investments.

In August, Oaktree closed its first Asia-specific private equity fund, OCM Asia Principal Opportunities, raising $577 million. And a month later, it strengthened its Asian real estate activities, paying an undisclosed amount to acquire pan-Asian real estate investor Panagaea Capital.

The firm also teamed up with Goldman Sachs in early December to buy a minority stake in Global Leisure Partners, an advisor and co-investor on private equity deals in the gaming, lodging and leisure industries. The amount paid for Global Leisure Partners, which originated deals including the $30 billion take-private of Harrah’s Entertainment by TPG and Apollo, was not disclosed.

Today, Ocwen Financial, a publicly traded corporation based in Florida, said it received a $438 million take-private offer from an Oaktree-backed consortium including Ocwen’s chief executive as well as Angelo Gordon.

The firm’s high level of activity shouldn’t surprise PEO readers. In the fall, Marks made evident to sister publication Private Equity International that Oaktree was gaining momentum from credit market dislocation.

“Now, we’re probably going into a period where attitudes are less positive, and capital is not so easily available, prices are not bid up so much and there’s some distress,” Marks said. “For us, that’s better times. That’s when we start to smile.”