NewStar Financial will acquire Fifth Street CLO Management (FSCM), a wholly-owned subsidiary of Fifth Street Holdings, an affiliate of Fifth Street Asset Management, a publicly-traded credit-focused asset management firm based in Greenwich, CT.

The estimated purchase price is approximately $16 million, net of $13 million of assumed indebtedness and will be subject to adjustment up or down based on certain working capital items as of the closing of the transaction. The acquisition will add approximately $726 million to NewStar’s assets under management, increasing total pro forma AUM to approximately $7.3 billion.

The transaction is expected to close in Q3/17, subject to certain investor consents and other closing conditions set forth in the purchase agreement between Fifth Street Holdings and NewStar. The transaction is expected to be accretive to NewStar’s earnings per share in 2017.

FSCM was formed in 2015 by Fifth Street to manage its middle market CLO business. FSCM currently manages two CLOs backed by middle market loans and holds certain interests in its sponsored CLOs primarily to comply with regulatory risk retention requirements.

Over the past 18 months, NewStar has focused on expanding its asset management platform by launching new managed funds, acquiring investment management platforms and increasing its investment activity. This transaction is the company’s second acquisition adding to its managed assets and represents another step in that strategy. The acquisition is complementary to the company’s existing middle market direct lending business and provides balance to its overall asset management platform, increasing pro forma fee-paying AUM to $4 billion, split evenly between its middle market and liquid credit strategies platforms. The transaction also adds significantly to the company’s lending capacity, allowing it to better meet the needs of its private equity clients and compete more effectively to lead new direct lending opportunities.

FSCM will become a wholly-owned subsidiary of NewStar and the funds will be managed by NewStar’s middle market investment team. The transaction is expected to add more than $2.5 million to the company’s run-rate fee revenue and will serve as a further catalyst to the growth of NewStar’s asset management activities.

“This acquisition is consistent with our strategy to expand our asset management activities in ways that add to our value proposition for institutional investors and leverage our core strengths in direct lending, securitization and credit management. This transaction also provides an attractive way to diversify our business mix, adding to fee revenue and accelerating improvement in equity returns,” said NewStar’s Chairman and Chief Executive Officer Tim Conway.