Softbank–Fortress Deal: Surprising And Canny

Japanese telecom giant SoftBank raised eyebrows at the end of February by announcing that it will buy the publicly traded private equity titan Fortress Investment Group.

The bold takeover—in which SoftBank is to pay $3.3 billion in cash at a 39% premium to Fortress’s share price when the deal was made public—has some market-watchers in the private equity community scratching their heads.

 But anyone familiar with SoftBank’s track record of acquisitions and venture capital deals will see the method in the madness, especially in the context of the company’s most recent fundraising activity.

The deal comes four months after SoftBank, headed by billionaire Masayoshi Son, revealed plans for the firm’s Vision Fund. The fund, which is targeting $100 billion for technology investments, already has attracted investments from such big hitters as Apple, Qualcomm, Foxconn and Oracle co-founder and former CEO, Larry Ellison.

Shares in SoftBank rose 0.7% following the takeover announcement, while shares in Fortress jumped by 28% in aftermarket trading.

“SoftBank’s move to acquire Fortress was a surprise, but in contrast to many of the initial reactions to SoftBank’s M&A, the shares rose,” says analyst Oliver Matthew, head of Asia consumer, Japan Internet, media and telecoms at brokerage firm CLSA in Tokyo. “This makes sense to us. Although the details of the Vision Fund are yet to be revealed, acquiring Fortress gives SoftBank a robust backbone and likely cost synergies to apply the $100 billion in assets expected to come in over the medium term for the Vision Fund.”

Rather than starting from scratch, SoftBank’s Son is able to use Fortress as a platform from which he can administer the Vision Fund, which aims to be the largest of its kind.

Despite the obvious synergies, Fortress’s involvement with Vision Fund will represent a move into uncharted territory. The private equity firm, which had $70 billion in assets under management as of September 30, 2016, has made investments across a broad range of sectors including infrastructure and real estate. Technology, however, is not typically one of them.