AGNC Investment Corp. acquired American Capital Mortgage Management, LLC for $562 million, a transaction completed in July 2016, structured as all cash.
American Capital Mortgage Management, LLC operates in Investment management (manager internalization), is based in Bethesda, Maryland, USA. AGNC (then American Capital Agency Corp.) acquired American Capital Mortgage Management, LLC (ACMM), its own external investment manager, from American Capital Asset Management, LLC, a portfolio company of American Capital, Ltd. (ACAS). ACMM was the parent of both American Capital AGNC Management, LLC (AGNC's manager) and American Capital MTGE Management, LLC (manager of the sister REIT MTGE Investment Corp.). The deal converted AGNC into an internally managed residential mortgage REIT and eliminated the external management fee, which totaled $27 million in Q1 2016 (about $108 million annualized). The transaction arose out of ACAS's strategic review, which culminated in a separate agreement for Ares Capital Corporation to acquire ACAS.
Following the transaction AGNC will be an internally-managed residential mortgage REIT. AGNC no longer pays the external management fee and, excluding one-time charges, expects the transaction to provide a net cash economic benefit of approximately $80 million per year, while retaining ACMM's employee base and investment team.
Internalizing the manager eliminated a large recurring external management fee and gave AGNC direct control of its investment platform, expected to leave it with one of the lowest run-rate operating cost structures as a percentage of shareholders' equity among residential mortgage REITs. Elimination of external management fee (~$108 million annualized) offset by ~$40-45 million annualized compensation and benefits for retained ACMM employees plus modest G&A; net cash economic benefit estimated at ~$80 million per year, partially offset by fee income from managing MTGE post-closing. American Capital MTGE Management, LLC became an indirect subsidiary of AGNC and continued to provide external management to MTGE Investment Corp. under the existing fee structure.
We are very excited to be acquiring the investment management function of AGNC and MTGE. This transaction enhances AGNC's overall value proposition for shareholders through the substantial cost savings that will be realized over time from the elimination of the management fee, net of incremental operating costs.Gary Kain, Chief Executive Officer and President, AGNC Investment Corp.
In the end, the ACAS strategic review process provided us the opportunity to take this transformative step to internalize the Company's management function. Importantly, the transaction preserves the continuity of our investment team ... while significantly reducing AGNC's operating cost structure.Prue Larocca, Chair of the Board, AGNC Investment Corp.
Advisory firms were not disclosed for this transaction.