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Ares Kayne merger collapses

The two alternative investment firms have dropped their planned merger but say they will look for other ways to collaborate.

Kayne Anderson Real Estate Advisors (KAREA) is no longer becoming part of Ares Management. Ares and KAREA’s parent company, Kayne Anderson Capital Advisors, are terminating their planned merger agreement, PERE sister publication Private Debt Investor reported Tuesday. 

“While both companies believe in the current investment opportunities in energy, the two companies had a different view as to how best to proceed with the business combination in response to the current market conditions in the energy sector. After thoughtful discussions, both sides decided it was best not to pursue the transaction at this time,” said a statement from the two firms.

Kayne Anderson’s large publicly-traded master limited partnerships have continued to suffer mark-to-market losses. Those funds had suffered mark-downs ahead of the initial merger announcement, however, and were acknowledged by the firm’s chairman Ric Kayne at the time. 

The two firms still admire each other’s organisations, the statement said, so Ares and some of its principals plan to invest $150 million in some of Kayne Anderson’s energy activities, which include energy private equity, private equity income and energy infrastructure funds. The two firms will look for additional collaborative marketing opportunities, including jointly managing separately managed accounts and other products, the firms said.

Stockholders of various Kayne Anderson public funds were set to vote on the proposed merger later this week, on October 30. 

The two US alternative investment firms announced the merger in July. Based on firms’ respective assets as of 31 March, the merged entity would have managed $113 billion in assets, Ares’ management said at the time. The deal was scheduled to close on 1 January 2016. Ares was going to pay Kayne Anderson $2.55 billion, split between equity and $500 million in cash. Ares, which is publicly traded, was also going to issue new shares at $19 per unit, giving Kanye Anderson, which is management-owned, no less than $1.8 billion and no more than $2.05 billion in equity.

As of the second quarter, Ares had $88 billion in assets under management, while Kayne Anderson managed $29 billion, with the bulk of it in energy strategies.

Ares, which listed in 2014, had been using its public profile to hunt for acquisitions, as president Michael Arougheti has said on previous earnings calls. The firm has been expanding its energy capabilities in other ways: by hiring energy and power experts within its direct lending group, as well as acquiring Energy Investors Funds, a $4 billion infrastructure energy manager, in 2014.

Both Ares and Kayne Anderson are headquartered in Los Angeles, with outposts in several major US cities. Ares’ direct lending business also has a chunky presence in Europe.

KAREA, based in Boca Raton, Florida, is led by Al Rabil and employs around 40 people. The business was established in 2007 and has $2 billion of assets under management in niche property sectors.