TPG (TPG) on Monday agreed to purchase alternative investment company Angelo Gordon in a $2.7 billion cash-and-equity deal, as the former looks to expand into the credit market.
TPG will pay $970 million in cash and up to 62.5 million units of its operating group and restricted stock units. The deal includes an earn-out of up to $400 million, based on Angelo Gordon’s financial performance in the future. TPG’s stock dropped 2% in Monday trading.
The transaction, which requires approval from international regulators, is expected to close in the fourth quarter. Upon completion, Angelo Gordon will become a new investing platform within TPG and be led by its current co-Chief Executives Josh Baumgarten and Adam Schwartz as co-managing partners.
“This strategic transaction meaningfully expands our investing capabilities and broadens our product offering,” TPG Chief Executive Jon Winkelried said. “The addition of Angelo Gordon also underscores our continued focus on growing and scaling through diversification, while driving long-term value for our shareholders.”
TPG anticipates to fund the cash portion of the deal from its current cash balance and undrawn revolver. It is expected to be mid- to high-single digit accretive to the firm’s shareholders on a fee-related and after-tax distributable earnings per-share basis next year, before any revenue or cost synergies.
The transaction is expected to diversify TPG’s portfolio through a substantial expansion into credit investing, including corporate credit and special situations, direct lending, and structured credit. It also broadens the alternative asset management firm’s geographic reach in Europe and Asia.
Separately, TPG reported that total revenue tumbled to $643.1 million in the first quarter from $1.11 billion a year earlier. Fee-related revenue advanced 10% to $265.4 million on a non-GAAP basis, below the consensus on Capital IQ for $282.4 million. After-tax distributable earnings came in at $0.24 per class A share. Three analysts polled by Capital IQ were expecting $0.33.
Fee-related earnings advanced to $99.3 million from $92 million, while assets under management totaled $137.14 billion at the end of March, an increase of 14% from the previous year. “With a near record $43 billion of dry powder and a growing pipeline of attractive investment opportunities, we believe we are well-positioned to deploy capital across our core sectors and themes in an increasingly favorable environment,” Winkelried said in the earnings statement.