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Hedge fund manager Man Group has acquired a controlling stake in $11.8bn credit fund Varagon Capital Partners, signalling its ambitions to grow in the private credit market.
The group paid $183mn in cash to Varagon’s existing owners Aflac, Corebridge Financial, AIG and former senior executives at Varagon. The three companies will be eligible for an additional payment of $93mn if they maintain existing capital commitments, Man Group said.
Varagon’s current executives will place their remaining 27 per cent stake in the group into a structure that gives Man Group the right to buy it at “fair market value” in 8 to 10 years, according to the announcement.
Varagon was founded in 2014 and has lent $24.5bn to more than 300 companies. It generated $116.3mn in revenue and $30.9mn in profit before tax in 2022, according to the Man Group announcement. It has offices in New York, Fort Worth in Texas, and Chicago.
Varagon chief executive Walter Owens will stay on as part of the acquisition, Man Group said.
The fund makes senior secured loans to US midsized companies, especially in the healthcare sector. It has also lent to companies in the food and beverage, distribution, manufacturing, aerospace and defence businesses, according to its website.
The private credit market is expanding as higher interest rates have pushed up borrowing costs. Private credit funds have become an increasing source of financing for smaller and midsized companies that struggle to get large bank loans and are too small to go to the bond market. They are a particularly popular funding avenue for private equity owned companies.
Man Group launched its private markets arm Man GPM in 2016 when it bought real estate investing firm Aalto. Man GPM had $3.2bn in assets under management at the end of the first quarter 2023.
Analysts at Numis noted that Man was paying 1.6x the revenues of the business, which they said seemed “low, even by recent depressed private asset manager valuation standards”.
They added it was difficult to assess the valuation without more information on variables such as performance fees.
Analysts at Jefferies said the deal seemed “inexpensive” and a “good use of capital”.
Man Group is the world’s largest listed hedge fund group with $145bn in AUM. Its share price was up nearly 2 per cent on Thursday morning at 222.2p.
