In an attempt to diversify its business, The Carlyle Group LP (CG) recently announced that it will acquire Diversified Global Asset Management Corporation (:DGAM). The acquisition is expected to be complete by Feb 2014.
Carlyle will initially pay $33 million – $25 million in stock and $8 million in cash – for DGAM and then an additional amount of maximum $70 million might be paid over the following seven years, subject to performance of DGAM. Management at DGAM will remain unchanged.
Incepted in 2004, DGAM has roughly $6.7 billion in managed and advised assets. On completion of the acquisition, it will be a part of Carlyle's solutions platform, which includes funds of private equity funds. As a result of this deal, Carlyle's solutions platform will be able to offer diverse investment solutions across hedge funds, private equity and real estate to its clients. The latter had $48.4 billion in assets under management as of Sep 30, 2013.
The deal with DGAM will mark Carlyle's first venture into funds of hedge funds. However, the company already owns 55% stake in three regular hedge funds: credit specialist Claren Road Asset Management; emerging markets investor Emerging Sovereign Group; and commodities expert Vermillion Asset Management.
Following the footsteps of asset manager Blackstone Group LP (BX) and Kohlberg Kravis Roberts & Co. L.P. (KKR), Carlyle has been diversifying its business over the past decade to grow assets and reduce greater dependence on leveraged buyouts. Carlyle recently acquired a 40% stake in Dutch investment manager AlpInvest Partners NV and completed the acquisition of Metropolitan Real Estate Equity Management LLC, a fund-of-funds investor in property.
We believe that Carlyle’s efforts to diversify beyond its traditional business will help to boost earnings amid a volatile operating environment. Also given its sound liquidity and balance sheet position, we expect the company to drive further inorganic growth in the quarters ahead.
Carlyle currently carries a Zacks Rank #3 (Hold). A better-ranked stocks in the same sector include Waddell & Reed Financial, Inc. (WDR), which carries a Zacks Rank #1 (Strong Buy).