Asset management firm T Rowe Price on Thursday agreed to buy fund manager Oak Hill Advisors in a $4.2 billion cash-and-stock deal, moving deeper into the alternative investments market and offering more choices for its clients.
Shares of T Rowe were up as much as 6% at $216, their highest in over a month.
The deal comes at a time when asset managers are exploring ways to bolster their profitability amid fierce competition and lower fees from the switch towards more passive investing by investors.
Some asset managers are seeking greater scale in existing areas and others are branching out into new spaces such as alternatives, which generate higher returns.
The trend may trigger more potential tie-ups between other mutual fund managers and private equity firms. Generally, the steady stream of consolidation in the asset management space is expected to continue, according to a report from accounting and consulting firm PwC.
"OHA meets the high bar we have set for inorganic opportunities, and their proven private credit expertise will help us meet our clients' demand for alternative credit," T Rowe Chief Executive Officer Bill Stromberg said.
As of July end, New York-based OHA manages $53 billion of capital across its asset classes. Since January last year, it has raised $19.4 billion of capital.
T Rowe, which offers a suite of mutual funds, account management and other advisory services, manages $1.61 trillion in assets as of Sept. 30.
The total deal value includes $3.3 billion payable at closing, through 74% of cash and the rest in T Rowe's common stock, and an additional $900 million if certain business milestones are met in the beginning of 2025, the company said.
Evercore was the financial adviser to T Rowe Price, while J.P. Morgan Securities and M. Klein & Company advised OHA.