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Blackstone wins coveted bid for GSO

Hedge fund M&A activity on the rise.

In January, Blackstone announced that it would acquire GSO, an alternative asset manager specializing in leveraged finance. The acquisition will give Blackstone one of the biggest credit platforms in the industry. GSO’s $10 billion in assets augments the $11 billion that Blackstone already has in corporate debt operations.

Blackstone got a good deal, paying just $620 million initially; it will pay an additional $310 million over five years depending on earnings targets. That values GSO at just 9% of assets under management. That is far less than Blackstone’s own valuation despite GSO’s having suffered a 40% fall in its stock price since launch.

"We all wanted GSO," says a Morgan Stanley source. Most peeved, however, must be Merrill Lynch, which bought a 20% stake in GSO in May 2006 at what was probably a higher price – the terms of the minority stake were not disclosed. Blackstone’s long-standing relationship with the GSO principals no doubt played a part in the partnership decision.

An increasing number of acquisitions are being made in the alternative investment sector. Erika Cramer, advisory director at financial services M&A boutique Silver Lane Advisors, says that over the past three years, deal flow has tripled.

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