Deal With Mubadala Gives Fortress More Control Over Its Future

“We had the opportunity here to do what we’re seeing as a management buyout,” says Joshua Pack, who will be co-CEO after the deal closes.

Illustration by II

Illustration by II

The deal struck between Mubadala Capital, Fortress Investment Group, and SoftBank gives Fortress’s management a new level of control over the company.

On Monday, Fortress and Mubadala announced that they are acquiring Fortress from SoftBank, which has owned Fortress, the $46 billion investment manager, since 2017.

Although Mubadala, the investment arm of Abu Dhabi’s sovereign wealth fund, will acquire 70 percent of the company, Fortress’s management team will own a class of shares allowing them to appoint a majority of the board following the acquisition’s close.

Joshua Pack and Drew McKnight, previously managing partners at Fortress, have been promoted to co-CEOs. Pete Briger, the former CEO, will become chairman.

“We had the opportunity here to do what we’re seeing as a management buyout,” said Pack. “Even though we’re putting up the minority of the equity, we’re still putting up 30 percent, which is a big check for us.”

Pack and McKnight will be the largest Fortress shareholders in the business. Any Fortress employee who is a legally qualified investor had the opportunity to buy a stake in the business. Pack, McKnight, and Briger currently are three of the five board members. Hani Barhoush, CEO of Mubadala Capital, will continue to hold a board seat.

Prior to Monday’s deal, Mubadala owned a 9.99 percent stake in the firm. When SoftBank, which acquired Fortress in 2017 for $3.3 billion, signaled that it wanted out of the business, the three firms began discussing ways to partner on a new deal.

“When SoftBank bought us originally the message from them was that they were going to own us forever,” Pack said. Late last spring, that changed. “We wanted to work with them and get out ahead of it,” he added.

Pack and McKnight expect the firm to stick to its investment strategy. For the firm’s distressed and opportunistic credit strategies, the two see a lot of “epic opportunities,” as McKnight put it, in which to invest in the coming months.

“Part of that is driven by the fact that we see this contraction in credit caused by not only regional banks but anyone that relies on leverage to finance themselves or their businesses,” Pack said. “We continue to see this reduction in credit in the overall system. That presents some great opportunities for us in the future. All of these are a continuation of the strategies that we’ve invested in over time.”

The new joint ownership structure does, however, shift things for the firm. “We are probably more strategic to Mubadala than we were to SoftBank,” McKnight said.

He added that SoftBank was not involved in investment committee decisions because it was subject to Committee on Foreign Investment in the United States regulations. The same will hold true for Mubadala, but McKnight and Pack expect that the firm will likely be more involved in potential investment ideas.

“There will be more communication between the two if there are opportunities,” Pack added.

The deal will grow Mubadala’s investment capabilities in public and private credit and real estate, according to an email from Ardea Partners, Mubadala’s financial advisor on the deal. Fortress, meanwhile, will be able to access Mubadala’s “global network, extensive portfolio of diversified assets and investment opportunities,” the email said.

Barhoush echoed these sentiments in a statement shared on Monday.

“We have a strong existing relationship with Fortress’s exceptional management team and are excited to deepen the relationship further in the years ahead based on a strong alignment of vision, while delivering even greater value to our investors,” he said.