Oaktree Founders Could Pocket $234.4m from IPO

Howard Marks and Bruce Karsh, co-founders of Oaktree Capital Group, could end up with $117.2 million each by selling stakes in the debt-focused private equity firm in an IPO that could raise up to $595.1 million, writes Reuters. Oaktree has $74.9 billion in assets under management and said in a regulatory filing it expects its offering of 11.25 million Class A units to be priced between $43 and $46 apiece.

Reuters – Howard Marks and Bruce Karsh, co-founders of Oaktree Capital Group LLC, could pocket up to $117.2 million each by selling a slice of their stakes in their debt-focused private equity firm as a result of an IPO that could raise up to $595.1 million.

Oaktree, which had $74.9 billion in assets under management as of the end of 2011, said in a regulatory filing on Friday it expected its offering of 11.25 million Class A units to be priced between $43 and $46 apiece.

If all these shares are sold, underwriters have the option to buy an additional 1.69 million shares with an underwriting discount applied to the IPO price.

Based on the mid-point of the indicated IPO range, the company expects net proceeds of $426.1 million. If the underwriters exercise in full their option to purchase additional Class A units, the net proceeds will be about $491.2 million, Oaktree said.

It is the third sale of equity in Oaktree. The firm first sold about 13 percent of itself to its clients in 2004 and then sold 16 percent of itself for net proceeds of $944.2 million to outside institutional investors in 2007 in a private placement.

The IPO proceeds will be used to buy back so-called OCGH units, representing interests in the Oaktree Operating Group, which holds all of its businesses, assets and employees. Marks and Karsh own 15.6 percent each of the total OCGH units, Oaktree said in the filing.

Marks and Karsh are expected to be paid between $101.9 million and $117.2 million depending on whether underwriters exercise in full their option to purchase additional Class A units in the IPO, Oaktree added.

The two founders would be lowering their ownership of OCGH units from 15.6 percent to 14 percent were they to be paid $101.9 million and to 13.8 percent if they were paid $117.2 million, Oaktree said.

Marks and Karsh will also get money as a result of their disproportionate interest in the historical incentive income from certain closed-end funds that held their final closing before Oaktree’s May 2007, the firm added, without disclosing details.

As a result of the upcoming OCGH unit sale, Marks and Karsh will also be paid $31.5 million and $31.6 million respectively as a result of a tax receivable agreement designed to pass on 85 percent of Oaktree’s cash savings in tax.

Oaktree expects payments under the tax receivable agreement in connection with the 2007 private placement, which it started making in January 2009, to amount to $56.8 million over the next 16 years and warned that payments for future OCGH unit exchanges were expected to be substantial.

CARLYLE IPO

Marks, 65, and Karsh, 57, founded Los Angeles, California-based Oaktree in 1995 with four other partners, all coming from asset manager TCW Group Inc. Marks and Karsh each had a net worth of $1.5 billion as of March 2012, according to Forbes.

IPOs can be a lucrative way for founders to cash out on some on their ownership of their private equity firms. Blackstone Group’s co-founders, Stephen Schwarzman and Peter Peterson, earned a huge windfall from the firm’s IPO in 2007, pocketing more than $2.4 billion between them.

Carlyle Group has also filed for an IPO, although it has said its founders will not directly receive any of the proceeds. Shares of alternative asset managers have generally performed poorly since their listing, though they have been buoyed by the recent stock market rally.

“If you look at the stock prices of its peers Blackstone, KKR & Co and Apollo, they are all up 30 to 40 percent in the last six months, which means the market is much more receptive right now than it had been in the past,” said Francis Gaskins, a partner at IPODesktop.com.

“It’s the right time for Oaktree to go public and also for Carlyle Group. The sector is up and that’s what attracting them,” he added.

Oaktree, which has posted a net loss attributable to the company for the last four years, has developed a niche for distressed debt investments. As of the end of 2011, its closed-end funds had yielded an aggregate gross internal rate of return of 19.4 percent on over $52 billion of drawn capital.

In its latest filing, Oaktree added BofA Merrill Lynch, Credit Suisse, Deutsche Bank, J.P. Morgan and six others to its list of underwriters.

Goldman Sachs and Morgan Stanley are acting as the representatives of the underwriters.