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 - Free Report) and Kohlberg Kravis Roberts & Co. L.P. (KKR - Free Report) , 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).