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Carlyle to make 2.4x on Duff & Phelps

Carlyle Group stands to more than double its money on Duff & Phelps after a more than four-year hold, a source said.

Permira on Wednesday said it agreed to buy Duff & Phelps in a deal valued at $1.75 billion. Exiting shareholders include Carlyle,  Neuberger BermanUniversity of  California and Pictet & Cie. Duff & Phelps’s management will retain a “significant” stake and continue to lead the company, a statement said.

Duff & Phelps, New York, employs about 2,000 professionals. It is known for its valuation services to government entities, hedge funds, PE firms and public companies, the Wall Street Journal reported.

The investment is Permira’s first financial-services deal in the U.S., Reuters said. The U.K. private equity firm closed its latest fund on 7.5 billion euros ($8.7 billion) in January.

Carlyle’s investment dates to April 2013 when the buyout shop led a consortium to buy Duff & Phelps in a deal valued at $665.5 million. Other investors included Stone Point Capital, Pictet and Edmond de Rothschild Group.

Carlyle and Stone Point each agreed to an initial investment of up to $100.1 million equity (with plans to provide $87 million more each if other investors fall through), while Pictet agreed to provide $70 million and Rothschild $17 million, regulatory filings said.

Shareholders recouped some of their investment through dividends. Duff & Phelps has paid out three distributions for nearly $500 million since the sale to the Carlyle-led group. The first payout came in October 2013 when Duff & Phelps increased its debt by $135 million to fund a $131 million dividend to investors, Moody’s Investors Service said.

Two years later, in 2015, the University of California’s investment office acquired a minority stake in Duff & Phelps from Stone Point, Rothschild and Pictet. (Stone Point and Rothschild exited at this point while Pictet apparently stayed.) Carlyle and Duff & Phelps’s management team also increased their stake. It’s not clear how much Carlyle invested.

That year, in August 2015, Duff & Phelps borrowed another $152 million in debt to pay a second dividend, up to $195 million, to shareholders, Moody’s said. In September 2017, the firm issued its third payout. Duff & Phelps used $80 million of cash on hand and incremental debt to fund a $170 million dividend to shareholders, Moody’s said.

For Carlyle, the Duff & Phelps investment produced a 45 percent IRR over four years, or a multiple of about 2.4x, the source said. The investment came from Carlyle Global Financial Services Partners II, the firm’s dedicated financial services pool. The fund closed on $1 billion in 2014, Buyouts said.

Executives for Duff & Phelps and the University of California could not immediately be reached for comment. Neuberger declined comment.

Action Item: Contact Noah Gottdiener, Duff & Phelps CEO, at +1 212-871-2000

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