UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14C
(Rule 14c-101)
Information Statement Pursuant to Section 14(c) of
the Securities Exchange Act of 1934
Check the appropriate box:
| ☒ | Preliminary Information Statement | |||||||
| ☐ | Confidential, for Use of the Commission Only (as permitted by Rule 14c-5(d)(2)) | |||||||
| ☐ | Definitive Information Statement | |||||||
TPG Inc.
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
| ☐ | No fee required. | |||||||||||||
| ☐ | Fee paid previously with preliminary materials | |||||||||||||
| ☒ | Fee computed on table in exhibit required by Item 25(b) of Schedule 14A (17 CFR 240.14a-101) per Item 1 of this Schedule and Exchange Act Rules 14c-5(g) and 0-11 | |||||||||||||
PRELIMINARY INFORMATION STATEMENT - SUBJECT TO COMPLETION
TPG Inc.
301 Commerce Street, Suite 3300
Fort Worth, TX 76102
817-871-4044
INFORMATION STATEMENT
WE ARE NOT ASKING YOU FOR A PROXY AND
YOU ARE REQUESTED NOT TO SEND US A PROXY.
YOU ARE REQUESTED NOT TO SEND US A PROXY.
ABOUT THIS INFORMATION STATEMENT
In this Information Statement (the “Information Statement”), unless the context otherwise requires, “TPG,” “we,” “us” and “our” and similar expressions refer to TPG Inc., a Delaware corporation.
This Information Statement is being sent to inform our stockholders of TPG’s receipt of the requisite stockholder approval, pursuant to NASDAQ Listing Rule 5635(a), of (i) the anticipated issuance of up to 62.5 million common units (“Common Units”) of TPG Operating Group II, L.P. (“TOG II”) (with an equal number of shares of Class B common stock, par value $0.001 per share (“Class B Shares”), issued by TPG) at the Closing of the Transactions (each as defined herein) and (ii) the potential issuance of Common Units (with an equal number of Class B Shares), as part of an earnout payment of up to $400 million in value, payable in cash and Common Units, subject to the satisfaction of certain fee-related revenue targets (such earnout payment, the “Earnout Payment” and the issuance of Common Units as part of the Earnout Payment, the “Earnout Equity Payment”), in each case to be issued pursuant to and subject to certain limitations and adjustments set forth in the transaction agreement, as amended (the “Transaction Agreement”), dated May 14, 2023, by and among TPG and certain of its affiliates, and Angelo, Gordon & Co., L.P. (“AG OpCo”) and AG Funds L.P. (“AG CarryCo,” and together with AG OpCo, collectively, “Angelo Gordon”) and certain of their affiliated entities, pursuant to which TOG II has agreed to acquire all of the outstanding limited partnership interests in AG OpCo and AG CarryCo, as well as all the outstanding limited liability company interests in API GP and limited partnership interests in API (each as defined herein) (such acquired interests, collectively, the “Acquired Interests”) in the transactions contemplated by the Transaction Agreement and the other transaction documents contemplated thereby (collectively, the “Transactions”).
The issuance of Common Units in connection with the closing of the Transactions (the “Closing”) and the Earnout Equity Payment is referred to together as the “Common Unit Issuance.” The issuance of Class B Shares in connection with the Closing and the Earnout Equity Payment is referred to together as the “Class B Issuance.” The Common Unit Issuance and Class B Issuance are referred to together as the “Issuance.”
This Information Statement is also being sent to our stockholders to inform them of TPG’s receipt of the requisite stockholder approval of amendments to our Amended and Restated Certificate of Incorporation (the “Charter”) in furtherance of the Transactions, including to permit the Class B Issuance, as set forth in a copy of the amendment to TPG’s Charter (the “Charter Amendment”) attached to this Information Statement as Annex E and as further described under “General.”
The Transaction Agreement, the Issuance and Charter Amendment were unanimously approved on May 12, 2023, by the TPG board of directors (the “Board of Directors”) and the executive committee thereof (the “Executive Committee”). On May 12, 2023, we obtained the written consent (the “Consent”) from TPG GP A, LLC (“TPG GP”), which represents a majority of the voting power of (i) TPG’s outstanding shares of Class A common stock, par value $0.001 per share (“Class A Shares”), and Class B Shares, voting together as a single class with respect to the Issuance and the Charter Amendment; and (ii) the outstanding Class B Shares, voting separately, with respect to the Charter Amendment.
Pursuant to and subject to the terms of the Amended and Restated Exchange Agreement (the “A&R Exchange Agreement”) to be entered into at Closing, each Common Unit will be exchangeable (i) for cash equal to the value of one Class A Share from a substantially concurrent primary equity offering (based on the closing price per Class A Share on the day before the pricing of such primary equity offering (taking into account customary brokerage commissions or
underwriting discounts actually incurred)) or (ii) at the applicable TPG affiliate’s election, for one Class A Share (or, in certain cases, for non-voting Class A common stock of TPG (the “non-voting Class A Shares”)). Pursuant to the A&R Exchange Agreement, the number of Common Units that may be exchanged by New API II, Founder Holdings A and Founder Holdings G (each as defined herein and, collectively, the “API Feeders”) into cash or Class A Shares following the Closing will be limited to an amount representing no more than 19.99% of the Class A Shares, non-voting Class A Shares and Class B Shares outstanding immediately prior to the Closing until at least 20 calendar days after TPG mails the definitive form of this Information Statement to its stockholders. The Class B Issuance will not occur prior to the date the Charter Amendment has become effective, which will be no earlier than 20 calendar days following the date on which the definitive form of this Information Statement is first mailed to our stockholders.
This Information Statement is being distributed and made available on or about [ ], 2023 to TPG’s stockholders of record entitled to vote on the matter as of May 12, 2023. This Information Statement constitutes notice to our stockholders of corporate actions taken by our stockholders without a meeting as required by Section 14C of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the rules thereunder. A separate notice was previously sent to stockholders as of May 12, 2023, as required pursuant to Section 228(e) of the Delaware General Corporation Law (the “DGCL”).
We will pay the costs of preparing and distributing this Information Statement. We will require brokerage houses, nominees, custodians, fiduciaries and other like parties to forward this Information Statement to the beneficial owners of our Class A Shares held by them and we will reimburse such persons for out-of-pocket expenses incurred in forwarding such materials.
The date of this Information Statement is [ ], 2023.
TABLE OF CONTENTS
Page | |||||
i
ii
iii
CAUTIONARY NOTE CONCERNING FORWARD-LOOKING STATEMENTS
This Information Statement may contain forward-looking statements based on our beliefs and assumptions and on information currently available to us. Forward-looking statements can be identified by words such as “anticipates,” “intends,” “plans,” “seeks,” “believes,” “estimates,” “expects” and similar references to future periods, or by the inclusion of forecasts or projections. Examples of forward-looking statements include, but are not limited to, statements we make regarding the outlook for our future business and financial performance, estimated operational metrics, business strategy and plans and objectives of management for future operations, including, among other things, statements regarding the terms of the Transactions, the Issuance and the Charter Amendment, as well as the other transactions contemplated by the Transaction Agreement.
Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include the inability to complete and recognize the anticipated benefits of the Transactions on the anticipated timeline or at all; purchase price adjustments; unexpected costs related to the Transactions and the integration of the AG Companies’ (as defined herein) business and operations; TPG’s ability to manage growth and execute its business plan; and regional, national or global political, economic, business, competitive, market and regulatory conditions. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and risk factors discussed from time to time in TPG’s filings with the United States Securities and Exchange Commission (the “SEC”), including, but not limited to, those described in “Item 1A. Risk Factors” in our Annual Report on Form 10-K (the “Annual Report”), filed with the SEC on February 24, 2023, as such factors may be updated from time to time in our periodic filings with the SEC, which are accessible on the SEC’s website at https://www.sec.gov, and “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
For the reasons described above, we caution you against relying on any forward-looking statements, which should also be read in conjunction with the other cautionary statements that are included elsewhere in this Information Statement. Any forward-looking statement made by us in this Information Statement speaks only as of the date on which we make it. Factors or events that could cause our actual results to differ may emerge from time to time, and it is not possible for us to predict all of them. We undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.
1
SUMMARY
This summary highlights certain information contained in this Information Statement, including the Annexes to this Information Statement, and may not contain all of the information that is important to you. To better understand the Transactions and the Transaction Agreement, you should read this entire Information Statement, including the Transaction Agreement attached hereto as Annex A and the other annexes referred to herein. Additional important information is also contained in the documents incorporated by reference into this Information Statement. You may obtain such documents without charge by following the instructions in “Where You Can Find More Information” below. Capitalized terms used in this summary and not defined herein have the meanings assigned to them elsewhere in this Information Statement.
General (page 10)
This Information Statement is being delivered to our stockholders in connection with the Issuance and the Charter Amendment approved in furtherance of the Transactions. A copy of the Transaction Agreement and the Charter Amendment are attached to this Information Statement as Annex A and Annex E, respectively. See “General” below.
Requirement to Obtain Stockholder Approval (page 10)
Pursuant to NASDAQ Listing Rule 5635(a), when a NASDAQ-listed company proposes to issue securities in connection with the acquisition of the stock of another company, stockholder approval is required if, among other things, due to the present or potential issuance of common stock, including stock issued pursuant to an earnout provision or similar type of provision, or securities convertible into or exercisable for common stock, other than a public offering for cash, the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock or voting power outstanding before the issuance of the stock or securities. The Common Unit Issuance requires approval by our stockholders pursuant to NASDAQ Listing Rule 5635(a) because the Common Units to be issued in the Common Unit Issuance may be exchanged, subject to certain limitations pursuant to the A&R Exchange Agreement, for more than 20% of the Class A Shares, non-voting Class A Shares and Class B Shares outstanding immediately prior to the Closing. Requisite stockholder approval of the Common Unit Issuance was obtained pursuant to the Consent as described below. Although the Common Unit Issuance will occur in connection with the Closing and the satisfaction of the applicable fee-related revenue targets may result in an additional Common Unit Issuance in connection with the Earnout Equity Payment, as applicable, pursuant to the A&R Exchange Agreement, the number of Common Units that may be exchanged by the API Feeders into cash or Class A Shares following the Closing will be limited to an amount representing no more than 19.99% of the Class A Shares, non-voting Class A Shares and Class B Shares outstanding immediately prior to the Closing until at least 20 calendar days after TPG mails the definitive form of this Information Statement to its stockholders. The Class B Issuance will not occur prior to the date the Charter Amendment has become effective, which will be no earlier than 20 calendar days following the date on which the definitive form of this Information Statement is first mailed to our stockholders.
In connection with the Transactions, we are also making certain amendments to our Charter relating to the Class B Issuance and the Pre-Closing TPG Transactions (as defined herein). These changes, among others, are set forth in the Charter Amendment included in Annex E attached hereto. Requisite stockholder approval of the Charter Amendment was obtained pursuant to the Consent as described below.
Parties and the Transactions (page 12)
Parties to the Transaction Agreement (page 12)
TPG Inc.
TPG Inc. is a holding company whose only material asset is its interest in the TPG Operating Group (as defined herein), a leading global alternative asset manager founded in San Francisco in 1992, with $139 billion of assets under management (“AUM”) as of June 30, 2023 and investment and operational teams around the world. TPG invests across five multi-strategy platforms: Capital, Growth, Impact, Real Estate and Market Solutions and its unique strategy is driven by collaboration, innovation and inclusion.
2
TPG Operating Group II, L.P.
TOG II, together with TPG Operating Group I, L.P. (“TOG I”) and TPG Operating Group III, L.P. (“TOG III”) and their respective consolidated subsidiaries (collectively, the “TPG Operating Group”), is an indirect subsidiary of TPG, which is the sole indirect owner of the entities serving as the general partner of TOG II and the other TPG Operating Group partnerships, and which holds Common Units in each of the TPG Operating Group partnerships.
TPG GP A, LLC
TPG GP (together with TPG and TOG II, the “TPG Parties”) is a Delaware limited liability company owned by entities owned by Messrs. Bonderman, Coulter and Winkelried, and is the owner of the general partner of TPG Group Holdings (SBS), L.P. (“TPG Group Holdings”), a Delaware limited partnership that holds all of TPG’s outstanding Class B Shares.
AG Partner Investments, L.P.
AG Partner Investments, L.P. (“API”) is a Delaware limited partnership whose only material assets are its interest in AG OpCo and AG CarryCo, which together form Angelo Gordon, a fully integrated and scaled multi-strategy platform with $74.3 billion in AUM across two primary strategies: Credit and Real Estate.
Alabama Investments (Parallel) Founder A, LP
Alabama Investments (Parallel) Founder A, LP (“Founder Holdings A”) is a Delaware limited partnership. API GP is its general partner, and API is its sole limited partner. Founder Holdings A was formed on May 9, 2023 solely for the purpose of effecting the Transactions.
Alabama Investments (Parallel) Founder G, LP
Alabama Investments (Parallel) Founder G, LP (“Founder Holdings G”) is a Delaware limited partnership. API GP is its general partner, and API is its sole limited partner. Founder Holdings G was formed on May 9, 2023 solely for the purpose of effecting the Transactions.
Alabama Investments (Parallel), LP
Alabama Investments (Parallel), LP (“New API II”, and together with Founder Holdings A, Founder Holdings G and API GP, the “API Entities”) is a Delaware limited partnership. API GP is its general partner, and API is its sole limited partner. New API II was formed on May 9, 2023 solely for the purpose of effecting the Transactions.
Angelo, Gordon & Co., L.P.
AG OpCo is a Delaware limited partnership that serves as an investment advisor for the AG Company Funds (as defined herein), as well as an investment vehicle through which API and AG OpCo’s other limited partners (including Angelo Gordon employees) indirectly hold the underlying assets corresponding to Angelo Gordon.
AG Funds, L.P.
AG CarryCo is a Delaware limited partnership that serves as an investment vehicle through which API indirectly holds the underlying assets corresponding to the AG Company Funds.
AG GP, LLC
AG GP, LLC (“API GP”, and together with API, AG OpCo and AG CarryCo, the “AG Companies”) is a Delaware limited liability company that serves as the general partner of the API Entities. API GP also serves as the API Representative (as defined herein) prior to Closing.
3
Michael Gordon 2011 Revocable Trust
Michael Gordon 2011 Revocable Trust (“AG Founder Trust”) is a trust through which affiliates of Michael Gordon, a co-founder of Angelo Gordon, hold interests in Angelo Gordon.
API GP Managing Members
The API GP managing members (the “API GP Managing Members”) are Adam Schwartz and Joshua Baumgarten, co-CEOs of Angelo Gordon.
API Representative, LLC
API Representative, LLC is a Delaware limited liability company that will serve as the representative of the API entities (“API Representative”) from and after the Closing. API GP serves as the API Representative prior to Closing.
The Transactions (page 14)
Pursuant to the Transaction Agreement and the other transaction documents, and subject to the terms and conditions contained therein, TOG II has agreed to acquire all of the outstanding limited partnership interests in AG OpCo and AG CarryCo, as well as all the outstanding limited liability company interests in API GP and limited partnership interests in API.
Recommendation and Reasons for the Transactions (page 20)
The Board of Directors and Executive Committee unanimously (i) approved the terms of the Transaction Agreement and the transactions contemplated thereby, including the Merger (as defined herein), and determined that the Issuance and the Charter Amendment are advisable and in the best interests of TPG and its stockholders; (ii) recommended that the TPG stockholders approve the Issuance in accordance with the applicable provisions of NASDAQ Listing Rule 5635(a); (iii) directed that the Issuance be submitted to TPG stockholders for their consideration and approval by written consent; (iv) approved, adopted and declared advisable the Charter Amendment; and (v) recommended that the stockholders of TPG approve and adopt the Charter Amendment by written consent in lieu of a meeting.
For a discussion of the factors that the Board of Directors and the Executive Committee considered in making their determination, see “Recommendation and Reasons for the Transactions” below.
Opinion of TPG’s Financial Advisor (page 22)
Pursuant to an engagement letter between TPG and Ardea Partners LP (“Ardea”), dated May 12, 2023 (the “Engagement Letter”), TPG engaged Ardea to act as its financial advisor in connection with the Transactions.
Ardea delivered its oral opinion addressed to the Board of Directors on May 14, 2023, subsequently confirmed in a written opinion to the Board of Directors dated as of May 15, 2023 (the “Ardea Fairness Opinion”), that, as of the date of such opinion and based upon and subject to the factors and assumptions set forth therein, the aggregate amount payable in connection with the Transactions (in the assumed amounts specified in the Ardea Fairness Opinion at the direction of the Board of Directors, the “Consideration”) to be paid by TOG II for the Acquired Interests pursuant to the Transaction Agreement dated as of May 14, 2023 (and not taking into account any subsequent amendments or modifications thereof) was fair from a financial point of view to TPG.
The full text of the Ardea Fairness Opinion, which sets forth the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in connection with the opinion, is attached to this Information Statement as Annex F. The summary of Ardea’s opinion contained in this Information Statement is qualified in its entirety by reference to the full text of the Ardea Fairness Opinion. Ardea provided advisory services and its opinion for the information and assistance of the Board of Directors in connection with its consideration of the Transactions. Ardea’s opinion is not a recommendation as to how any TPG stockholder should vote, consent or act with respect to the Transactions or any other matter. Pursuant to the Engagement Letter, TPG has agreed to pay Ardea a transaction fee of approximately $16,000,000, all of which is payable following and subject to consummation of the Transactions.
4
For a description of the Ardea Fairness Opinion, and for additional information, see “Parties and the Transactions— Opinion of TPG’s Financial Advisor” below and Annex F to this Information Statement.
Financing of the Transactions (page 29)
The Transactions are not subject to a financing condition. TPG expects to fund the cash consideration for the Transactions by drawing $470.0 million under its existing senior unsecured revolving credit facility (as amended and restated, the “Senior Unsecured Revolving Credit Facility”) and paying the remainder with cash on hand.
On September 26, 2023, TOG I, TOG II, TOG III and TPG Holdings II Sub, L.P. (“Holdings II Sub”), each as co-borrowers, entered into an amendment and restatement of the Senior Unsecured Revolving Credit Facility to, among other things, (i) extend the maturity date of the revolving credit facility from July 15, 2027 to September 26, 2028; (ii) increase the aggregate revolving commitments thereunder from $700 million to $1.2 billion; (iii) provide for additional flexibility with respect to internal reorganizations; and (iv) provide for certain limited condition availability provisions, and other adjustments, in connection with the Transactions.
On September 26, 2023, TOG II, as borrower, and TOG I, Holdings II Sub and TOG III, each as guarantors, entered into an amendment and restatement of the existing senior unsecured term loan agreement (as amended and restated, the “Senior Unsecured Term Loan Agreement”) to, among other things, (i) extend the maturity date of the term credit facility from December 2, 2024 to March 31, 2026; (ii) provide for additional flexibility with respect to internal reorganizations; and (iii) provide for certain other adjustments in connection with the Transactions.
TPG elected to proactively secure these changes to the Senior Unsecured Revolving Credit Facility and Senior Unsecured Term Loan Agreement to provide additional financial flexibility and bolster its liquidity position in anticipation of the consummation of the Transactions.
Material United States Federal Income Tax Consequences of the Transactions (page 29)
It is expected that the Transactions will not result in any material U.S. federal income tax consequences to holders of Class A Shares.
No Appraisal Rights in Connection with the Transactions (page 31)
The DGCL does not provide dissenters’ rights of appraisal to our stockholders in connection with the matters discussed in this Information Statement.
The Transaction Agreement and Related Agreements (page 32)
On May 14, 2023, TPG, TOG II, TPG GP, AG OpCo, AG CarryCo, API, API GP, Founder Holdings A, Founder Holdings G, New API II, AG Founder Trust, the API GP Managing Members (solely for the purposes set forth in the Transaction Agreement) and API GP, as the API Representative, entered into the Transaction Agreement. Pursuant to the Transaction Agreement and the other transaction documents, and subject to the terms and conditions contained therein, TOG II has agreed to acquire all of the outstanding limited partnership interests in AG OpCo and AG CarryCo, as well as all the outstanding limited liability company interests in API GP and limited partnership interests in API.
Closing; Effective Time of the Merger (page 33)
The Transaction Agreement provides that, unless another date is agreed to in writing by the API Representative and TOG II, the Closing will take place on the first business day of the calendar month occurring at least two business days after the first date on which all of the conditions to the Closing are satisfied or waived (other than those conditions which, by their terms, are to be satisfied or waived at the Closing, but subject to the satisfaction or waiver of such conditions). The merger of API with and into TOG II (the “Merger”) will become effective upon the filing of the certificate of merger or at such subsequent time or date as TOG II and the API Representative may agree and specify in the certificate of merger (the time at which the Merger becomes effective, the “Effective Time”).
5
Amounts Payable (page 33)
The aggregate amount payable in connection with the Transactions, including the Merger will consist of (i) an estimated $709.4 million in cash (based on an assumed level of net cash and current assets of the AG Companies as of the date of this Information Statement), subject to certain adjustments; (ii) up to 62.5 million Common Units (and an equal number of Class B Shares) and restricted stock units of TPG (“RSUs”) that, subject to the terms and conditions of the RSUs, will settle in Class A Shares, in each case, subject to certain adjustments set forth in the Transaction Agreement; (iii) rights to an amount of cash, payable in up to three payments of up to $50,000,000 each, reflecting an aggregate of up to $150,000,000 (the “Aggregate Annual Cash Holdback Amount”); and (iv) rights to the Earnout Payment. For additional information on the amounts payable, including updates, estimates and assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” below.
Representations and Warranties (page 34)
The Transaction Agreement contains customary and, in certain cases, reciprocal representations and warranties by the API Entities, AG Companies, AG Founder Trust and the TPG Parties that are (i) subject to specified exceptions and qualifications contained in confidential disclosure schedules and (ii) qualified, in the case of certain representations and warranties by the TPG Parties, by certain information filed by TPG with the SEC.
Retention Pool (page 40)
The TPG Parties have agreed to establish a stock-based retention pool under the Omnibus Equity Incentive Plan (the “Omnibus Plan”) (or applicable NASDAQ exception for non-plan grants) in the aggregate amount of the AG RSU Amount (as defined herein), to promote retention of the continuing employees of the AG Companies and to incentivize efforts to consummate the Closing (the “Retention Program”). Subject to the terms and conditions of the RSUs, the RSUs will settle into Class A Shares. The aggregate number of RSUs to be granted pursuant to the Retention Program will be calculated based on the AG RSU Amount and a deemed value of $30.00 per RSU. Participants in the Retention Program will be granted RSUs as soon as practicable but not later than 30 days after the Closing Date (as defined herein). As described in “The Transaction Agreement and Related Agreements—Amounts Payable,” the aggregate amount of amounts payable to AG Non-Founder Partners (as defined herein) is reduced by the AG RSU Amount.
Regulatory Approvals (page 40)
Each of the parties has agreed to, if required by law, within 20 business days following the date of the Transaction Agreement, file or supply all notifications and information required to be filed or supplied pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the “HSR Act”) in connection with the Transactions.
Each of the parties has agreed to, as promptly as practicable following the date of the Transaction Agreement, make all other filings and submissions under antitrust law or other law applicable to the TPG Parties, AG Companies, API Entities or to their subsidiaries and affiliates, as may be required to consummate the Transactions, and use reasonable best efforts (which will not require any payment or concession to any person in connection with obtaining such person’s consent) to obtain all other authorizations, approvals, consents and waivers from all persons or governmental authorities as are necessary to consummate the Transactions. These approvals include antitrust approvals under the laws of certain other jurisdictions and written consents from the Securities & Futures Commission (“SFC”) in Hong Kong and the Financial Conduct Authority (“FCA”) in the United Kingdom.
HSR Act and U.S. Antitrust Matters
The Closing is conditioned upon all required filings under the HSR Act having been made and the termination or expiration of all applicable waiting periods (and any extensions) thereunder. The parties made the required filings with the Federal Trade Commission (the “FTC”) and the Antitrust Division of the Department of Justice (the “DOJ”) on June 8, 2023, and the initial 30-day waiting period expired at 11:59 p.m. Eastern time on July 10, 2023.
6
Other Antitrust Clearances
The Closing is conditioned upon all required filings under the Dutch Competition Act (1997), as amended, the Act Against Restraints of Competition in Germany, the Monopoly Regulation and Fair Trade Act in Korea, and to the extent applicable, certain other jurisdictions, having been made and the termination or expiration of all applicable waiting periods (and any extensions thereof) thereunder. The parties made the required filing with the Federal Cartel Office under the Act Against Restraints of Competition in Germany on June 28, 2023, and received clearance on July 5, 2023. The parties made the required filing with the Authority for Consumers and Markets under the Dutch Competition Act (1997), as amended, on June 30, 2023, and received clearance on July 19, 2023. The parties made the required filing with the Korea Fair Trade Commission under the Monopoly Regulation and Fair Trade Act in Korea on August 10, 2023, and received clearance on September 22, 2023.
Financial Conduct Authority
The Closing is conditioned upon the receipt of written consent from the FCA. Section 178 of the U.K. Financial Services and Markets Act 2000 (the “FSMA”) requires TPG (and any other potential controllers, including relevant affiliates of TPG, to the extent required) to apply for pre-approval from the FCA before acquiring control of Angelo, Gordon Europe LLP (“AG Europe”), a wholly owned subsidiary of AG OpCo, that is authorized and regulated by the FCA. In addition, Section 191D of the FSMA obliges any person with an existing threshold interest in AG Europe to give the FCA prior notice if, as a result of the transaction, their holding would fall below certain thresholds. This obligation requires a notification only, and FCA pre-approval is not required to dispose of control. Any failure by an existing controller to give such prior notice of an intended reduction in their holding below specific thresholds is also a criminal offense. Finally, under the FCA’s rules, a failure by AG Europe to make its own notification to the FCA of the proposed change in control could result in FCA action being taken against it. This obligation requires a notification only, and AG Europe does not separately need to obtain FCA preapproval. The proposed incoming controllers submitted their application to the FCA for pre-approval on June 21, 2023. The FCA approved the application on September 1, 2023 (and such approval will remain valid until November 23, 2023 absent extensions from the FCA).
Securities & Futures Commission
The Closing is conditioned upon the receipt of written consent from the SFC in Hong Kong. Pursuant to the Transaction Agreement, TPG must obtain consent from the SFC for certain TPG entities and individuals to become substantial shareholders, as defined under the Securities and Futures Ordinance (“SFO”), of Angelo, Gordon Hong Kong Limited (“AG Hong Kong”), a subsidiary of AG OpCo, as contemplated under the Transaction Agreement by filing the new substantial shareholder applications and information on TPG specified under section 402 of the SFO together with any other information required by the SFC. The new substantial shareholder applications were filed by TPG on July 26, 2023.
Closing Conditions (page 42)
The respective obligations of each of the TPG Parties, the API Entities and the AG Companies to effect the Transactions and consummate the Closing are subject to the fulfillment or waiver, at or prior to the Closing, of certain conditions, including (among other conditions) the following:
•(i) all required filings under the HSR Act having been made and the termination or expiration of all applicable waiting periods (and any extensions) thereunder; (ii) all required filings under the Dutch Competition Act (1997), as amended, the Act Against Restraints of Competition in Germany, the Monopoly Regulation and Fair Trade Act in Korea, and to the extent applicable, certain other jurisdictions having been made and the termination or expiration of all applicable waiting periods (and any extensions) thereunder; and (iii) the receipt of regulatory consents from the SFC in Hong Kong with respect to AG Hong Kong and the FCA in the United Kingdom with respect to AG Europe;
•there shall not be in effect any law, injunction or other order by a governmental authority restraining, enjoining, having the effect of making the transactions contemplated by Transaction Agreement illegal or otherwise prohibiting the consummation of the transactions contemplated by the Transaction Agreement;
•since the date of the Transaction Agreement, no Alabama Material Adverse Effect or Acquiror Material Adverse Effect (each as defined in the Transaction Agreement), as applicable, shall have occurred and be continuing; and
7
•the compliance and performance by the parties, in all material respects, of their respective agreements and covenants and obligations required by the Transaction Agreement to be complied with or performed by such party at or prior to the Closing.
Indemnification (page 43)
Pursuant to the Transaction Agreement and subject to the terms and conditions contained therein, following the Closing:
•each AG Partner (as defined herein) (severally and not jointly in accordance with their certain respective relative ownership percentages calculated in accordance with the Transaction Agreement) will indemnify TOG II and each of its affiliates (including, following the Closing, the AG Company Group Entities (as defined herein)) and each of their respective directors, officers, employees, stockholders, partners, agents, representatives, successors and permitted assigns (the “TPG Indemnitees”) for any losses arising from (i) pre-Closing breaches of any covenant or agreement of any API Entity contained in the Transaction Agreement that survives Closing; (ii) breaches of any covenant or agreement by the API Representative or any pre-Closing covenant of any AG Company contained in the Transaction Agreement that survives Closing; and (iii) fraud by any AG Company or any API Entity;
•each AG Partner will indemnify the TPG Indemnitees for any losses arising from certain other matters set forth in the disclosure schedules to the Transaction Agreement, including certain tax-related matters; and
•TOG II will indemnify the AG Partners (as defined herein) and their affiliates and each of their respective directors, officers, employees, stockholders, partners, agents representatives, successors and permitted assigns from losses arising from (i) breaches of any covenant or agreement of any TPG Party contained in the Transaction Agreement that survives Closing; (ii) breaches of any post-Closing covenant of any AG Company contained in the Transaction Agreement; and (iii) any fraud of any TPG Party.
Termination of the Transaction Agreement (page 44)
TOG II and the API Representative may terminate the Transaction Agreement under certain circumstances, including (i) by mutual written consent at any time prior to the Closing; (ii) upon the issuance of a final and non-appealable governmental order, the enactment of law or taking of other action permanently enjoining the Closing (subject to certain conditions); (iii) following a violation, breach or inaccuracy of any representation, warranty, covenant or agreement of the applicable party to the Transaction Agreement that would cause the closing conditions not to be satisfied and that has not been waived or cured within a certain period of time; and (iv) if the Transactions have not been consummated on or before 11:59 p.m., Eastern Time, on April 1, 2024 (the “Termination Date”).
In addition, the API Representative may terminate the Transaction Agreement at any time prior to the Closing, upon written notice to TOG II if the written consent of the requisite TPG stockholders sufficient to approve (i) the issuance of Common Units exchangeable pursuant to the A&R Exchange Agreement into Class A Shares in excess of 19.99% as required by NASDAQ Listing Rule 5635(a) and (ii) the Charter Amendment is not delivered to the API Representative within two business days after the execution and delivery of the Transaction Agreement. This termination right is no longer exercisable because TOG II delivered the Consent to the API Representative within the time required by the Transaction Agreement.
Related Agreements (page 46)
The Transaction Agreement contemplates that, at the Closing, (i) certain key employees of the AG Companies and 80% of the AG Partners shall have executed a partner acknowledgement and joinder agreement (each, a “Partner Acknowledgment and Joinder Agreement”); (ii) each of New API II, Founder Holdings A and Founder Holdings G will enter the A&R Exchange Agreement, attached to this Information Statement as Annex C, and amending and restating that certain Exchange Agreement, dated as of January 12, 2022, by and among TPG, TOG I, TOG II, TOG III and the other parties thereto (the “Exchange Agreement”); (iii) each of New API II, Founder Holdings A and Founder Holdings G will enter into an Amended and Restated Investor Rights Agreement (the “A&R Investor Rights Agreement”), attached to this Information Statement as Annex B, and amending and restating that certain Investor Rights Agreement, dated as of January 12, 2022, by and among TPG, TOG I, TOG III, TOG II and the other parties thereto (the “Investor Rights Agreement”); and (iv) each of New API II, Founder Holdings A and Founder Holdings G will enter into an Amended and Restated Tax
8
Receivable Agreement (the “A&R Tax Receivable Agreement”), attached to this Information Statement as Annex D, and amending and restating that certain Tax Receivable Agreement, dated as of January 12, 2022, by and among TPG, TOG I, TOG III, TOG II and the other parties thereto (the “Tax Receivable Agreement”).
Pursuant to each Partner Acknowledgment and Joinder Agreement, such persons agree to (i) be bound by, and comply with, provisions applicable to the AG Partners set forth in the Transaction Agreement; (ii) join and become party to the A&R Investor Rights Agreement, the A&R Exchange Agreement and the A&R Tax Receivable Agreement and certain other transaction documents; and (iii) release TOG II, the API Entities, the AG Company Group Entities and certain other related persons, from any claims and liabilities arising from actions or omissions or other conduct occurring prior to and including the Closing, to the extent such actions or omissions relate to the Transactions, the organizational documents of API, New API II and the AG Company Group Entities, or the releasing party’s relationship with the AG Company Group Entities.
The A&R Exchange Agreement sets forth the terms upon which each Common Unit will be exchangeable (i) for cash equal to the value of one Class A Share from a substantially concurrent primary equity offering (based on the closing price per Class A Share on the day before the pricing of such primary equity offering (taking into account customary brokerage commissions or underwriting discounts actually incurred)) or (ii) at the applicable TPG affiliate’s election, for one Class A Share (or, in certain cases, for non-voting Class A Shares). The number of Common Units that may be exchanged by the API Feeders into cash or Class A Shares following the Closing will be limited to an amount representing no more than 19.99% of the Class A Shares, non-voting Class A Shares and Class B Shares outstanding immediately prior to the Closing until at least 20 calendar days after TPG mails the definitive form of this Information Statement to its stockholders.
The A&R Investor Rights Agreement sets forth certain transfer restrictions and customary registration rights with respect to the Class A Shares, Class B Shares and Common Units.
Pursuant to the A&R Tax Receivable Agreement, among other things, TPG (or its wholly owned subsidiaries) will agree to pay to the beneficiaries thereof 85% of the benefits, if any, that are realized, or deemed to be realized (calculated using certain assumptions), as a result of (i) adjustments to the tax basis of the assets of TOG II and its consolidated subsidiaries as a result of certain exchanges of Common Units and (ii) certain other tax benefits.
9
GENERAL
This Information Statement is being delivered to our stockholders in connection with the Issuance and the Charter Amendment approved in furtherance of the Transactions.
Approval of the Transactions
On May 12, 2023, the Board of Directors and the Executive Committee met to consider the proposed Transactions, the terms of the Transaction Agreement and other actions to be taken in connection with the Transactions. After discussion, including review and consideration of the factors described under “Recommendation and Reasons for the Transactions,” and pursuant to a unanimous written consent executed following the meeting, the Board of Directors and the Executive Committee unanimously (i) approved the terms of the Transaction Agreement and the transactions contemplated thereby, including the Merger, and determined that the Issuance and the Charter Amendment are advisable and in the best interests of TPG and its stockholders; (ii) recommended that the TPG stockholders approve the Issuance in accordance with the applicable provisions of NASDAQ Listing Rule 5635(a); (iii) directed that the Issuance be submitted to TPG stockholders for their consideration and approval by written consent; (iv) approved, adopted and declared advisable the Charter Amendment; and (v) recommended that the stockholders of TPG approve and adopt the Charter Amendment by written consent in lieu of a meeting.
Requirement to Obtain Stockholder Approval
The Issuance
We are subject to NASDAQ Listing Rule 5635(a) because our Class A Shares are listed on the NASDAQ Global Select Market (“NASDAQ”). Pursuant to NASDAQ Listing Rule 5635(a), when a NASDAQ-listed company proposes to issue securities in connection with the acquisition of the stock of another company, stockholder approval is required if, among other things, due to the present or potential issuance of common stock, including stock issued pursuant to an earnout provision or similar type of provision, or securities convertible into or exercisable for common stock, other than a public offering for cash, the number of shares of common stock to be issued is or will be equal to or in excess of 20% of the number of shares of common stock or voting power outstanding before the issuance of the stock or securities.
Pursuant to the Transaction Agreement, TOG II (i) will issue up to 62.5 million Common Units (with an equal number of Class B Shares issued by TPG) at the Closing and (ii) may issue Common Units of up to $400.0 million in value (with an equal number of Class B Shares) as part of an Earnout Equity Payment subject to the satisfaction of certain fee-related revenue targets, in each case to be issued pursuant to and subject to certain limitations and adjustments set forth in the Transaction Agreement. Pursuant to and subject to the terms of the A&R Exchange Agreement to be entered into at Closing, each Common Unit will be exchangeable (i) for cash equal to the value of one Class A Share from a substantially concurrent primary equity offering (based on the closing price per Class A Share on the day before the pricing of such primary equity offering (taking into account customary brokerage commissions or underwriting discounts actually incurred)) or (ii) at the applicable TPG affiliate’s election, for one Class A Share (or, in certain cases, for non-voting Class A Shares). The Common Unit Issuance requires approval by our stockholders pursuant to NASDAQ Listing Rule 5635(a) because the Common Units to be issued in the Common Unit Issuance may be exchangeable, subject to certain limitations pursuant to the A&R Exchange Agreement, for more than 20% of the Class A Shares, non-voting Class A Shares and Class B Shares outstanding immediately prior to the Closing. Requisite stockholder approval of the Common Unit Issuance was obtained pursuant to the Consent as described below. Although the Common Unit Issuance will occur in connection with the Closing and the satisfaction of the applicable fee-related revenue targets may result in an additional Common Unit Issuance in connection with the Earnout Equity Payment, as applicable, pursuant to the A&R Exchange Agreement, the number of Common Units that may be exchanged by the API Feeders into cash or Class A Shares following the Closing will be limited to an amount representing no more than 19.99% of the Class A Shares, non-voting Class A Shares and Class B Shares outstanding immediately prior to the Closing until at least 20 calendar days after TPG mails the definitive form of this Information Statement to its stockholders. The Class B Issuance will not occur prior to the date the Charter Amendment has become effective, which will be no earlier than 20 calendar days following the date on which the definitive form of this Information Statement is first mailed to our stockholders.
The Issuance will dilute the ownership percentage and voting interests of our current stockholders in our earnings, if any, voting power and market capitalization.
10
The Charter Amendment
In connection with the Transactions, we are also making certain amendments to our Charter relating to the Class B Issuance and the Pre-Closing TPG Transactions. Following the Pre-Closing TPG Transactions, the outstanding limited partnership interests in TOG I and TOG III will be directly or indirectly held by TOG II. We expect that the Pre-Closing TPG Transactions will have little to no effect on our results of operations or financial condition. These changes, among others, are set forth in the Charter Amendment included in Annex E attached hereto. The Charter Amendment was approved by our stockholders pursuant to the Consent as described below.
The Charter Amendment will become effective when filed with the Secretary of State of the State of Delaware, no earlier than the date that is 20 calendar days following the date on which the definitive form of this Information Statement is first mailed to our stockholders. As described above, the Class B Issuance will not occur prior to the date the Charter Amendment becomes effective.
No Voting Required
As of May 12, 2023, we had 72,252,574 Class A Shares and 228,652,641 Class B Shares, issued and outstanding and entitled to vote on the Issuance and the Charter Amendment. Each Class A Share was entitled to one vote per share and each Class B Share was entitled to ten votes per share, subject to Article 4.2(a) of our Charter, which stipulates that “Free Float” (as defined under the rules of the FTSE Russell relating to the Russell indices) Class A Shares are entitled to at least 5.1% of the aggregate voting power. On May 12, 2023, TPG GP, the beneficial owner of 50,848 Class A Shares and 228,652,641 Class B Shares (in each case, as of the date of the Consent), representing a majority of the voting power of the outstanding Class A Shares and Class B Shares, executed the Consent approving the Issuance in accordance with NASDAQ Listing Rule 5635(a) and the Charter Amendment in accordance with §242 of the DGCL.
No further vote or consent of our stockholders or the AG Companies or their interest holders is required to consummate the Transactions or effectuate the Issuance or the Charter Amendment. We are not seeking a vote, authorizations or proxies from you. Section 1.03 of our bylaws provides that stockholders may take action without a meeting, without prior notice and without a vote to the extent permitted by and in the manner provided in our Charter and in accordance with applicable law.
Description of Securities
The description of our Class A Shares and our Class B Shares is incorporated by reference from Exhibit 4.1 to our Annual Report. Holders of our Class A Shares and Class B Shares do not have preemptive, subscription or conversion rights. Each Class B Share is subject to redemption upon an exchange of one Common Unit for one Class A Share.
11
PARTIES AND THE TRANSACTIONS
Parties to the Transaction Agreement
TPG Inc.
TPG Inc. is a holding company whose only material asset is its interest in the TPG Operating Group, a leading global alternative asset manager founded in San Francisco in 1992, with $139 billion of AUM and investment and operational teams around the world. TPG invests across five multi-strategy platforms: Capital, Growth, Impact, Real Estate and Market Solutions and its unique strategy is driven by collaboration, innovation and inclusion.
TPG’s Class A Shares are listed on NASDAQ under the symbol “TPG”.
TPG’s principal executive offices are located at 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102.
TPG Operating Group II, L.P.
TOG II is an indirect subsidiary of TPG, which is the sole indirect owner of the entities serving as the general partner of TOG II and the other TPG Operating Group partnerships, and which holds Common Units in each of the TPG Operating Group partnerships.
TOG II’s principal executive offices are located at 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102.
TPG GP A, LLC
TPG GP is a Delaware limited liability company owned by entities owned by Messrs. Bonderman, Coulter and Winkelried, and is the owner of the general partner of TPG Group Holdings, a Delaware limited partnership that holds all of TPG’s currently outstanding Class B Shares.
TPG GP’s principal executive offices are located at 301 Commerce Street, Suite 3300, Fort Worth, Texas 76102.
AG Partner Investments, L.P.
API is a Delaware limited partnership whose only material assets are its interest in AG OpCo and AG CarryCo, which together form Angelo Gordon, a fully integrated and scaled multi-strategy platform with $74.3 billion in AUM across two primary strategies: Credit and Real Estate.
API’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
Alabama Investments (Parallel) Founder A, LP
Founder Holdings A is a Delaware limited partnership. API GP is its general partner, and API is its sole limited partner. Founder Holdings A was formed on May 9, 2023 solely for the purpose of effecting the Transactions.
Founder Holdings A’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
Alabama Investments (Parallel) Founder G, LP
Founder Holdings G is a Delaware limited partnership. API GP is its general partner, and API is its sole limited partner. Founder Holdings G was formed on May 9, 2023 solely for the purpose of effecting the Transactions.
Founder Holdings G’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
12
Alabama Investments (Parallel), LP
New API II is a Delaware limited partnership. API GP is its general partner, and API is its sole limited partner. New API II was formed on May 9, 2023 solely for the purpose of effecting the Transactions.
New API II’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
Angelo, Gordon & Co., L.P.
AG OpCo is a Delaware limited partnership that serves as an investment advisor for the AG Company Funds, as well as an investment vehicle through which API and AG OpCo’s other limited partners (including Angelo Gordon employees) indirectly hold the underlying assets corresponding to Angelo Gordon.
AG OpCo’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
AG Funds, L.P.
AG CarryCo is a Delaware limited partnership that serves as an investment vehicle through which API indirectly holds the underlying assets corresponding to the AG Company Funds.
AG CarryCo’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
AG GP, LLC
API GP is a Delaware limited liability company that serves as the general partner of the API Entities. API GP also serves as the API Representative prior to Closing.
API GP’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
Michael Gordon 2011 Revocable Trust
AG Founder Trust is a trust through which affiliates of Michael Gordon, a co-founder of Angelo Gordon, hold interests in Angelo Gordon.
AG Founder Trust’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
API GP Managing Members
The API GP Managing Members are Adam Schwartz and Joshua Baumgarten, co-CEOs of Angelo Gordon.
The API GP Managing Members’ principal executive offices are located at 245 Park Avenue, New York, New York 10167.
API Representative, LLC
API Representative, LLC is a Delaware limited liability company that will serve as the API Representative from and after the Closing. API GP serves as the API Representative prior to Closing.
API Representative’s principal executive offices are located at 245 Park Avenue, New York, New York 10167.
13
The Transactions
Pursuant to the Transaction Agreement and the other transaction documents, and subject to the terms and conditions contained therein, TOG II has agreed to acquire all of the outstanding limited partnership interests in AG OpCo and AG CarryCo, as well as all the outstanding limited liability company interests in API GP and limited partnership interests in API.
The Transactions include the following steps:
•TPG, TOG II and TPG GP will effectuate a pre-closing reorganization, following which all outstanding limited partnership interests in TOG I and TOG III will be directly or indirectly held by TOG II (the “Pre-Closing TPG Transactions”);
•the API Entities, API, AG OpCo, AG CarryCo and AG Founder Trust will effectuate a pre-closing reorganization (the “Pre-Closing AG Transactions” and, together with the Pre-Closing TPG Transactions, the “Pre-Closing Reorganizations”), following which all outstanding limited partnership interests in Angelo Gordon will be held by the API Entities and API;
•following the Pre-Closing Reorganizations, TOG II will acquire, directly or indirectly, from the API Entities, all of the outstanding limited partnership interests in AG OpCo and AG CarryCo that are held by the API Entities; and
•thereafter, among other things (i) the founder partners of API (“AG Founder Partners”) will each sell a portion of their interest in API to TOG II, (ii) in accordance with the Delaware Revised Uniform Limited Partnership Act, API will merge with and into TOG II, and upon consummation of the Merger, API will cease to exist as a separate legal entity, and TOG II will continue as the surviving partnership and (iii) TOG II will acquire from the API GP Managing Members all of the outstanding limited liability company interests in API GP.
Amounts Payable
The aggregate amount payable in connection with the Transactions, including the Merger will consist of (i) an estimated $709.4 million in cash (based on an assumed level of net cash and current assets of the AG Companies as of the date of this Information Statement), subject to certain adjustments; (ii) up to 62.5 million Common Units (and an equal number of Class B Shares) and RSUs that, subject to the terms and conditions of the RSUs, will settle in Class A Shares, in each case, subject to certain adjustments set forth in the Transaction Agreement; (iii) rights to the Aggregate Annual Cash Holdback Amount; and (iv) rights to the Earnout Payment.
New API II, Founder Holdings A and Founder Holdings G will be entitled to the Earnout Payment subject to the satisfaction of certain fee-related revenue targets during the period beginning on January 1, 2026 and ending on December 31, 2026. In particular, if the aggregate amount of certain fee-related revenues, net of any discounts, offsets (but including the fee that generated any such offset), expense reimbursements, fee shares, profit shares or similar arrangements of certain clients of the AG Companies:
•is less than or equal to $677,000,000, no Earnout Payment is payable;
•is between $677,000,000 and $807,000,000, an Earnout Payment calculated as a portion of $400,000,000, and based on the amount by which such fee-related revenues of the AG Companies exceeds $677,000,000, is payable; and
•is equal to or greater than $807,000,000, an Earnout Payment of $400,000,000 is payable.
The Earnout Payment is payable, at TOG II’s election, subject to certain limitations, in cash, Common Units (and an equal number of Class B Shares) or a combination thereof.
14
The Class B Shares to be issued pursuant to the Transaction Agreement, including the Earnout Equity Payment if achieved and paid in Class B Shares, will be issued following TPG’s Charter Amendment becoming effective or such other date on which TPG is permitted to (i) issue Common Units exchangeable pursuant to the A&R Exchange Agreement into Class A Shares in excess of 19.99% as required by NASDAQ Listing Rule 5635(a) and (ii) issue the Class B Shares issuable pursuant to the Transaction Agreement.
For additional information on the amounts payable, including updates, estimates and assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” below.
Background of the Transaction
The Board of Directors, Executive Committee and TPG management regularly review and assess the performance, strategy, competitive position, opportunities and prospects of TPG in light of the current business, economic and regulatory environments, as well as developments in the industries that provide investment management services and the opportunities and challenges facing participants in those industries, in each case, with the goal of enhancing value for TPG stockholders. These reviews have included consideration of, and discussions with, other companies from time to time regarding potential strategic alternatives, including, in the case of the AG Companies, potential business combinations and other strategic transactions. In connection with such reviews and at the direction of the Board of Directors and the Executive Committee, TPG management evaluated the credit landscape for potential strategic opportunities.
On March 3, 2022, Josh Evans (Head of Corporate Development of TPG) met in New York with Adam Schwartz (co-CEO and co-Chief Investment Officer of AG OpCo) for preliminary introductions, facilitated by Goldman Sachs, financial advisor to the AG Companies (“Goldman”). No specific terms were discussed at this time, but the parties agreed to proceed with additional discussions in respect of a potential strategic transaction following the execution of a confidentiality agreement.
On April 3, 2022, TPG and AG OpCo executed a confidentiality agreement. Following execution of the confidentiality agreement, TPG commenced preliminary financial diligence on the AG Companies.
On April 5, 2022, representatives of TPG, including Jon Winkelried (CEO of TPG and member of the Executive Committee), Todd Sisitsky (President of TPG and member of the Executive Committee) and Mr. Evans, and representatives of the AG Companies, including Mr. Schwartz, Josh Baumgarten (co-CEO and co-Chief Investment Officer of AG OpCo), Frank Stadelmaier (Chief Operating Officer of AG OpCo) and Scott Soussa (Chief Strategy Officer of AG OpCo), met in New York for preliminary introductions to discuss a potential acquisition by TPG of the AG Companies and the operations and synergies of their respective companies. No specific terms were discussed at this time.
On May 6, 2022, the Board of Directors and the Executive Committee held a regular meeting in San Francisco, which was attended by members of TPG’s management team and Mr. Evans. Mr. Evans briefed the Board of Directors and the Executive Committee of the acquisition landscape and opportunities for inorganic expansion, including in connection with the AG Companies, noting in particular the AG Companies’ diversified credit and real estate businesses.
On August 10, 2022, Mr. Winkelried, Jack Weingart (Chief Financial Officer and member of the Executive Committee), Anilu Vazquez-Ubarri (then Chief Human Resources Officer and current Chief Operating Officer of TPG, and member of the Executive Committee), James Coulter (Executive Chairman of TPG and member of the Executive Committee) and Mr. Evans met in New York with Messrs. Baumgarten and Schwartz for preliminary discussions concerning valuation. As part of such discussions, representatives of TPG directionally suggested, based on preliminary estimates from the AG Companies, a transaction consideration of approximately $2.87 billion, assuming the acquisition by TPG of 20% of the performance allocations generated by the AG Company Funds. TPG also indicated a potential earnout of $500 million. Following such discussions, representatives of the AG Companies sent follow-up questions to TPG relating to governance of the AG Companies, synergy and integration, retention, culture and management focus.
On September 13, 2022, the AG Companies held a management team meeting in San Francisco regarding the AG Companies’ follow-up questions, which representatives of TPG, including Mr. Winkelried, Mr. Sisitsky, Mr. Weingart, Ms. Vazquez-Ubarri, Ken Murphy (then Chief Operating Officer of TPG) and Mr. Evans, attended. During the meeting, the parties discussed the AG Companies’ business initiatives, operations, personnel philosophy and potential synergies between TPG and the AG Companies. The parties also discussed the operations of TPG, TPG’s retention packages, TPG’s goals and objectives with respect to growth, focus areas for the potential transaction and potential transaction structure.
15
During late September 2022, representatives of TPG and the AG Companies commenced discussions on their respective companies’ businesses.
On October 24, 2022, representatives of TPG received access to the AG Companies’ virtual data room (“VDR”). Representatives of TPG, including TPG’s legal counsel, Weil, Gotshal & Manges LLP (“Weil”), Davis Polk & Wardwell LLP (“DPW”) and Shearman & Sterling LLP (“Shearman”) received access to the VDR shortly thereafter and began diligence on the VDR, which continued through to the execution of the Transaction Agreement. From late October 2022, the parties began regular discussions with respect to diligence and other work stream processes.
On November 4, 2022, at a regular meeting of the Board of Directors and the Executive Committee, which was also attended by members of TPG management, the Board of Directors and the Executive Committee discussed TPG’s growth plans. Mr. Winkelried provided a brief status overview to the Board of Directors and the Executive Committee on the early-stage discussions on TPG’s process with the AG Companies. The Board of Directors and the Executive Committee were supportive of proceeding with detailed due diligence of the AG Companies, including through legal, accounting, tax and other advisors.
From early November 2022 through to the execution of the Transaction Agreement, Mr. Winkelried, Mr. Sisitsky, Mr. Weingart, Ms. Vazquez-Ubarri and Mr. Murphy, as well as other members of TPG management and representatives of TPG, commenced regular meetings on the potential transaction. As part of those meetings in November 2022, attendees reviewed the status of diligence, the potential prospects of the AG Companies, the components of a potential proposal, potential valuation considerations and a potential earnout payment and proposed further engagement with the AG Companies.
In mid-November 2022, TPG formally commenced detailed diligence, including through legal, tax, accounting and other advisors, which continued until execution of the Transaction Agreement. In the weeks that followed, TPG management and representatives of Weil, DPW and Shearman engaged in discussions relating to potential transaction terms, including with respect to structure of the earnout.
In late November 2022, TPG, with the approval of the Board of Directors and the Executive Committee, engaged Ardea to provide assistance with respect to a potential transaction, which was later formalized pursuant to the Engagement Letter. Ardea had previously provided certain investment banking services to TPG and/or its affiliates, including acting as financial advisor in connection with TPG’s initial public offering, and the Board of Directors deemed it appropriate to engage Ardea as financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Transactions.
In early December 2022, Mr. Winkelried, Mr. Weingart, Mr. Sisitsky, Ms. Vazquez-Ubarri and Mr. Murphy, as well as other members of TPG management and representatives of TPG, met to discuss progress on the potential transaction. Representatives of Ardea were also in attendance. As part of such discussions, representatives of Ardea provided a preliminary analysis of financial considerations relating to the AG Companies’ platforms. Attendees discussed key terms for a potential transaction to be reflected in a preliminary non-binding proposal, including potential transaction value, amount and consideration mix of a potential earnout payment and governance of the AG Companies post-closing, as well as a potential designation of an AG Partner to the Board of Directors and the Executive Committee. Thereafter, TPG proceeded with the preparation of a preliminary non-binding proposal.
On December 9, 2022, representatives of TPG management, including Messrs. Winkelried, Sisitsky and Evans, met via video conference with representatives of the AG Companies, including Messrs. Baumgarten and Schwartz, to present a preliminary non-binding proposal (the “December Proposal”). The December Proposal reflected approximately $2.65 billion in upfront consideration, consisting of approximately $691 million in cash (including up to $150 million to be paid in installments in the three calendar year ends following closing, based on annual performance related earnings exceeding certain thresholds) and approximately 61,359,000 Common Units at an assumed value of $31.92 per unit. The December Proposal also included an earnout payment of $350 million, payable in up to 75% equity at TPG’s option and based on the AG Companies satisfying certain fee-related revenue targets as of December 31, 2025.
On December 13, 2022, Mr. Evans and representatives of the AG Companies, including Messrs. Soussa and Stadelmaier discussed feedback on the December Proposal. Representatives of Ardea also attended. As part of those discussions, representatives of the AG Companies requested that TPG improve upon the valuation in the December Proposal, including with respect to the amount of the earnout payment and noted recent fundraising momentum of the AG
16
Companies. In addition, representatives of the AG Companies indicated they would plan to send TPG a counter proposal to the December Proposal.
On December 20, 2022, Mr. Soussa sent Mr. Evans a counter proposal to the December Proposal (the “December 20 Counter Proposal”). The December 20 Counter Proposal reflected upfront consideration of approximately $3.71 billion. Assuming 33.33% cash and 66.67% equity consideration, the upfront consideration consisted of approximately $1.24 billion in cash (including an aggregate cash holdback of up to $150 million). The December 20 Counter Proposal also reflected an earnout payment of $500 million, payable in up to 75% equity at TPG’s option and based on the AG Companies satisfying certain fee-related revenue targets as of 2025. Following the receipt of the December 20 Counter Proposal, Messrs. Sisitsky and Evans and representatives of the AG Companies, including Messrs. Baumgarten, Schwartz and Soussa, met via video conference to discuss the December 20 Counter Proposal. As part of those discussions, the AG Companies and their representatives expressed their views on appropriate valuation in light of the strength of their recent fundraising progress of the AG Companies, and considered potential mechanisms to calculate the cash and equity mix of the consideration. Thereafter, Messrs. Winkelried, Weingart and Sisitsky and Ms. Vazquez-Ubarri, as well as other members of TPG management, met on several occasions to discuss appropriate next steps with the AG Companies.
On January 4, 2023, TPG submitted an updated non-binding proposal to the AG Companies (the “January 4 Proposal”), which was presented via a video conference attended by Messrs. Winkelried, Sisitsky, Evans, Baumgarten, Schwartz and Soussa. The January 4 Proposal reflected certain of the AG Companies’ feedback on the December Proposal and the December 20 Counter Proposal. The January 4 Proposal decreased total upfront consideration to $3.11 billion, consisting of approximately $929 million in cash (including an aggregate cash holdback of up to $150 million) and approximately 68,340,000 Common Units at an assumed value of $31.92 per unit. The January 4 Proposal reflected 30% cash and 70% equity consideration on the basis that the non-founder partners of API (“AG Non-Founder Partners” and, together with the AG Founder Partners, the “AG Partners”) would receive cash and equity consideration of 15% and 85% in value, respectively, while AG Founders would receive cash and equity consideration of 90% and 10% in value, respectively. The January 4 Proposal also decreased the earnout payment to $400 million, payable in up to 75% equity at TPG’s option and based on certain fee-related revenue as of December 31, 2025.
On January 5 and January 10, 2023, Mr. Evans met with Mr. Soussa via video conference to discuss the January 4 Proposal and to clarify the valuation of the equity consideration.
On January 11, 2023, representatives of Goldman sent TPG a counter proposal to the January Proposal (the “January 11 Counter Proposal”). The January 11 Counter Proposal continued to reflect upfront consideration of approximately $3.11 billion. Assuming 30% cash and 70% equity consideration, the upfront consideration consisted of approximately $929 million in cash (including an aggregate cash holdback of up to $150 million) and 70,368,000 Common Units at an assumed value of $31.00 per unit. The January 11 Counter Proposal continued to reflect an earnout payment of $400 million.
On January 17 and January 18, 2023, representatives of TPG management, including Messrs. Sisitsky, Weingart, Murphy and Evans, met with representatives of AG Companies’ management, including Messrs. Baumgarten, Schwartz, Stadelmaier and Soussa and Brian Sigman (Chief Financial Officer and Treasurer of AG OpCo), for diligence sessions on the AG Companies. As part of these discussions, the parties agreed to proceed with documenting key terms for a potential transaction through a term sheet. On January 20, 2023, Mr. Winkelried, Mr. Sisitsky, Mr. Weingart, Ms. Vazquez-Ubarri and Mr. Murphy, as well as other members of TPG management and representatives of TPG, met to discuss the meetings with the AG Companies’ management, as well as key terms to be included in a term sheet, including potential amounts for upfront consideration and the earnout payment.
From late January through early February 2023, TPG, together with Weil, DPW, Shearman and other representatives of TPG, engaged in various discussions with the AG Companies with respect to the potential transaction, including with respect to deal structuring, purchase price adjustments and the structure of a potential earnout payment, as well as diligence sessions on TPG’s business. During this time, TPG, Weil, DPW and Shearman progressed a draft term sheet based on the January 11 Counter Proposal.
On February 3, 2023, Weil sent Paul, Weiss, Rifkind, Wharton & Garrison (“Paul Weiss”), legal counsel to the AG Companies, an initial term sheet with the proposed transaction terms as discussed between the parties (the “February 3 Term Sheet”). The February 3 Term Sheet reflected upfront consideration of $3.11 billion, comprised of $929 million in cash (including an aggregate cash holdback of up to $150 million) and 68,339,559 Common Units at an assumed value of $31.92 per unit. The February 3 Term Sheet noted the upfront consideration would be subject to adjustment based upon cash and equity consideration to be received by the AG Partners and purchase price adjustments based on client consents
17
received by the AG Companies, net GP investments, cash and working capital of the AG Companies. The February 3 Term Sheet proposed that the upfront consideration payable to the AG Founder Partners would be payable in 90% cash and 10% in Common Units, and the upfront consideration payable to the AG Non-Founder Partners would be payable in 15% cash and 85% in Common Units. The February 3 Term Sheet also proposed an earnout payment of $400 million, payable in up to 75% equity at TPG’s option and based on the AG Companies satisfying certain fee-related revenue targets as of December 31, 2025, as well as high-level terms regarding the structure of the earnout, post-closing governance of the AG Companies, post-closing designation rights for an AG Partner to the Board of Directors and the Executive Committee and other key transaction terms.
On February 10, 2023, the Board of Directors and the Executive Committee held a special meeting in San Francisco, which was attended by members of TPG management, including Messrs. Sisitsky and Evans. Messrs. Sisitsky and Evans provided the Board of Directors and the Executive Committee a summary of the efforts with respect to a potential transaction with the AG Companies to date, including an overview of the AG Companies’ business and key terms included in the February 3 Term Sheet. The Board of Directors inquired about the growth opportunity, culture fit, and overlap with existing TPG business and investors, as well as integration of the two businesses. Messrs. Sisitsky and Evans also provided an overview of ongoing work streams. The Board of Directors and the Executive Committee expressed support for continued engagement with the AG Companies.
On February 19, 2023, Paul Weiss sent Weil an updated term sheet with revisions for purchase price adjustments, earnout structure, post-closing governance of the AG Companies, post-closing designation rights for an AG Partner to the Board of Directors and Executive Committee, closing conditions and other key terms.
On February 20, 2023, the AG Companies sent TPG updated financial diligence.
On March 11, 2023, Weil sent Paul Weiss an updated term sheet, which reflected TPG’s updated position following the updated financial diligence on the AG Companies. Among other revisions to key terms, the updated term sheet decreased upfront consideration to $2.89 billion, comprised of $871 million in cash (including an aggregate cash holdback of up to $150 million) and 63,239,348 Common Units at an assumed value of $31.92 per unit. The term sheet noted the upfront consideration would be subject to adjustment based upon cash and equity consideration to be received by the AG Partners and other purchase price adjustments. The term sheet continued to value the earnout payment at $400 million.
During mid-March 2023, representatives of TPG and the AG Companies discussed the March 11 term sheet. The AG Companies provided feedback with respect to their willingness to continue discussions on a potential transaction in response to the decrease to the upfront consideration, as well as the assumed per unit price of Common Units in light of the then-current trading price of Class A Shares. The parties also agreed that the equity consideration would include a number of Class B Shares equivalent to the number of Common Units to be issued, and discussed the structure of the earnout payment, governance and other matters.
On March 27 and March 28, 2023, Messrs. Winkelried and Sisitsky met with the AG Companies’ management team, including Messrs. Baumgarten and Schwartz, in San Francisco to resolve open points on valuation, governance and other key deal terms. As part of these discussions, the parties agreed to upfront consideration to be calculated on the basis of $3.0 billion. The upfront consideration would consist of 30% cash and 70% equity consideration (based on the proportions of cash and equity consideration to be received by AG Founder Partners and AG Non-Founder Partners), resulting in $900 million in cash (including an aggregate cash holdback of up to $150 million) and 70,000,000 Common Units at an assumed value of $30 per unit, and would in each case be subject to adjustments set forth in the definitive transaction agreement. The earnout payment would continue to be valued at $400 million, but the parties agreed to continue to evaluate appropriate cash and equity mix of the earnout payment. The parties also agreed to work together following the execution of the definitive transaction agreement to determine the treatment of the AG Companies’ Essential Housing business (“Essential Housing”) with respect to a potential transaction.
In late March 2023, the parties agreed to continue negotiations on the basis of a draft transaction agreement.
On April 6, 2023, Weil provided an initial draft of the Transaction Agreement to Paul Weiss. Consistent with the March 27 and March 28 discussions and the draft term sheets, the initial draft transaction agreement reflected cash consideration to be received by the AG Partners and equity consideration to be received by the API Entities on behalf of the AG Partners calculated based on a base consideration value of $3.0 billion, determined as the aggregate of the aggregate amount of cash and equity consideration to be received by the AG Founder Partners and the AG Non-Founder Partners based on their respective portions of cash and equity, and subject to purchase price adjustments for client consents
18
obtained by the AG Companies, balance sheet items, an aggregate annual cash holdback amount of $150 million and certain other matters. The initial draft of the Transaction Agreement also reflected an earnout payment of $400 million, and proposed that the cash and equity proportions of the earnout payment would be in the same proportions of cash and equity to be received by the AG Founder Partners and the AG Non-Founder Partners in respect of the upfront consideration. From early to late April 2023, the parties exchanged drafts of the Transaction Agreement and related ancillary agreements and participated in negotiations with respect to key terms of the transaction, including with respect to the structure of the earnout, purchase price adjustments, post-closing governance, the proportions of cash and equity consideration to be received by certain AG Non-Founder Partners as part of the upfront consideration as well as the earnout payment and other matters.
On April 28, 2023, Paul Weiss circulated a revised draft of the Transaction Agreement to Weil. The revisions proposed a $70 million retention pool for the benefit of AG non-partner employees, among other items. In the days that followed, representatives of the AG Companies proposed to representatives of TPG additional revisions to the earnout payment structure, including that the earnout payment would be payable based on certain fee-related revenue as of December 31, 2026.
In early May 2023, Messrs. Winkelried and Sisitsky and other representatives of TPG senior management met by video conference on numerous occasions with Messrs. Baumgarten and Schwartz and other representatives of the AG Companies to discuss open business points. As part of those discussions, the parties agreed that the retention pool would result in a dollar-for-dollar reduction in upfront consideration and be increased to a range of $150 to $250 million, along with additional revisions to the structure of the earnout payment.
On May 5, 2023, the Board of Directors and the Executive Committee held a regular meeting in Fort Worth, which was also attended by members of TPG management. During the meeting, TPG management described the ongoing process of the Transactions and ongoing work streams. Mr. Winkelried provided the Board of Directors and the Executive Committee with a summary of the discussions with the AG Companies. Messrs. Sisitsky and Evans also provided the Board of Directors and the Executive Committee with an overview of the upfront consideration of approximately $3.0 billion, consisting of cash and equity consideration and the basis of the proportions of cash and equity consideration to be received by the AG Founder Partners and the AG Non-Founder Partners, with Common Units valued at $30 per unit, which would be subject to purchase price adjustments, as well as the terms of the $400 million earnout payment. The Board of Directors asked questions and discussed the growth opportunity, culture fit and ability to integrate the two businesses, as well as key open issues and work streams relating to negotiating the Transactions. Thereafter, the Board of Directors and the Executive Committee expressed their support for continued engagement towards reaching a deal.
From early May 2023 and until execution of the Transaction Agreement, representatives of TPG and AG Companies continued to negotiate outstanding terms of the Transaction Agreement, including with respect to the cash and equity mix of the earnout payment.
On May 12, 2023, the Board of Directors and the Executive Committee held a special meeting by video conference which was also attended by members of TPG management and representatives of Weil and Ardea. At the meeting, Messrs. Sisitsky and Evans presented an overview of the key terms of the Transaction Agreement and the related agreements and documents. Mr. Bradford Berenson (Partner and General Counsel of TPG) and representatives of Weil reviewed with the Board of Directors their fiduciary duties with respect to the proposed Transactions. Representatives of Ardea reviewed with the Board of Directors and the Executive Committee Ardea’s financial analysis of the Consideration that would form the basis upon which the Ardea Fairness Opinion would be rendered and presented a draft of the Ardea Fairness Opinion. Ardea noted that it would expect to deliver an opinion subject to Ardea’s review of the execution version of the Transaction Agreement. The Board of Directors asked questions related to the Transactions, including the earnout and consideration mix, and the strategic and operational control of the AG Companies post-Closing. Following deliberation, the Board of Directors and the Executive Committee expressed support towards finalizing the Transaction Agreement and related agreements.
19
Following the meeting, the Board of Directors and the Executive Committee executed a unanimous written consent that (i) approved the terms of the Transaction Agreement and the transactions contemplated thereby, including the Merger, and determined that the Issuance and the Charter Amendment are advisable and in the best interests of TPG and its stockholders; (ii) recommended that the TPG stockholders approve the Issuance in accordance with the applicable provisions of NASDAQ Listing Rule 5635(a); (iii) directed that the Issuance be submitted to TPG stockholders for their consideration and approval by written consent; (iv) approved, adopted and declared advisable the Charter Amendment; and (v) recommended that the stockholders of TPG approve and adopt the Charter Amendment by written consent in lieu of a meeting.
On May 14, 2023, the parties finalized the Transaction Agreement and representatives of Ardea rendered to representatives of the Board of Directors and the Executive Committee an oral opinion addressed to the Board of Directors, which was subsequently confirmed by delivery of the Ardea Fairness Opinion, that, as of such date and based upon and subject to various assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken in preparing its opinion, the Consideration (as defined in the Ardea Fairness Opinion) to be paid by the TOG II for the Acquired Interests pursuant to the Transaction Agreement, dated as of May 14, 2023 (and not taking into account any subsequent amendments or modifications thereof) was fair from a financial point of view to TPG. Following the delivery of the oral opinion by Ardea, the parties executed the Transaction Agreement.
On May 15, 2023, the parties issued a press release announcing the Transactions.
On October 3, 2023, the parties executed the amendment to the Transaction Agreement, which principally reflected the parties’ agreed treatment of Essential Housing.
Recommendation and Reasons for the Transactions
In evaluating the Transaction Agreement and the Transactions, the Board of Directors and the Executive Committee consulted with TPG’s management and TPG’s legal and financial advisors. In reaching their determination that the Transaction Agreement and the Transactions, including the Merger, the Issuance and the Charter Amendment, are advisable and in the best interests of TPG and TPG stockholders, the Board of Directors and the Executive Committee considered a variety of factors, including the following (not necessarily in order of relative importance):
•that the Transactions mark a significant potential strategic diversification of TPG and in particular, a significant expansion into credit investing for TPG, while establishing additional levers to drive organic growth and further expanding the breadth, diversification and reach of the TPG platform;
•that the Transactions present an opportunity to broaden TPG’s real estate platform into new geographies and strategies that are complementary to TPG’s current real estate strategies, including potential geographic reach in Europe and Asia, sourcing capabilities and additional real estate strategies, including a net lease strategy;
•that the Transactions are expected to enable TPG to provide a broad spectrum of alternative solutions for clients, creating an even more compelling product offering for TPG’s limited partners, expanding alternative investment opportunities across a broad range of asset classes and return profiles that offer solutions for high growth channels, such as insurance, high net worth and retail, as well as institutional clients;
•the potential for TPG to create a broader client base from the attractive and complementary base of clients of the AG Companies, including long-standing clients across the AG Companies’ credit and real estate businesses and the substantial opportunity to expand and strengthen such client relationships across platforms;
•that the Transactions present significant opportunities to grow revenue and optimize and scale within the combined platform, including as a result of shared intellectual capital, industry, sector and investing expertise, broadened limited partner relationships and distribution channels, and the support of robust infrastructure;
•the strong strategic and cultural fit between TPG and the AG Companies, including shared focus on entrepreneurship, innovation and investment excellence and complementary global client bases;
•the potential for enhanced capital formation capabilities resulting from a more diversified product set;
20
•the business, operations, management, financial condition, earnings and prospects of the AG Companies, including the scaled and diversified capabilities of the AG Companies’ credit platform and the real estate strategies of the AG Companies’ real estate platform;
•the potential financially accretive benefits to TPG stockholders through the Transactions;
•the long-term alignment of TPG’s and the AG Companies’ interests to drive future value through the Transactions, including that AG Non-Founder Partners will generally receive consideration of which 85% will consist of Common Units that are subject to ongoing vesting criteria, coupled with opportunities for continued margin expansion;
•the business, operations, management, financial condition, earnings and prospects of TPG;
•the results of TPG management’s due diligence investigation of the AG Companies and the reputation, business practices and experience of AG Companies and their management;
•the potential of other strategic acquisitions available to TPG;
•the Board of Directors’ understanding of the current and future competitive environment in which TPG operates, the potential for consolidation in the sector and the likely effect of these factors on the business, operations, management, financial condition, earnings and prospects of TPG;
•the Board of Directors’ expectation that, upon completion of the Transactions, current TPG stockholders will continue to own approximately 85% (excluding potential settlement of RSUs, including RSUs to be issued in the AG RSU Amount) of the outstanding equity of the combined company upon Closing;
•the historical trading prices of Class A Shares;
•the financial analyses of Ardea presented to the Board of Directors and the Executive Committee and the oral opinion of Ardea addressed to the Board of Directors, which was subsequently confirmed in writing by delivery of the Ardea Fairness Opinion to the Board of Directors, that, as of the date of such opinion and based upon and subject to the assumptions made, procedures followed, matters considered, and qualifications and limitations upon the review undertaken by Ardea in preparing its opinion, the Consideration to be paid by TOG II for the Acquired Interests pursuant to the Transaction Agreement, dated as of May 14, 2023 (and not taking into account any subsequent amendments or modifications thereof), was fair from a financial point of view to TPG. For a description of the Ardea Fairness Opinion, see “Opinion of TPG’s Financial Advisor” below; and
•the review by the Board of Directors and the Executive Committee with TPG’s legal and financial advisors of the Transactions and the financial and other terms of the Transaction Agreement and the other transaction documents.
The Board of Directors and the Executive Committee also considered a number of uncertainties and risks in their deliberations, including the following (not necessarily in order of relative importance):
•uncertainty around the market value of the Common Units to be issued in the Common Unit Issuance, which will be issued assuming a value of $30.00 per unit, as adjusted for the Client Consent Percentage (as defined herein) per unit, rather than at the then-existing market value;
•the potential dilution associated with the Issuance;
•the risk that the potential benefits of the Transactions may not be fully or partially realized or at all, including that there can be no assurance that any particular amount of growth, scale or synergies will be achieved following Closing or as to the time frame in which they will be achieved;
•the risk that the Transactions might not be successfully completed on the terms or timetable currently contemplated or at all despite the parties’ efforts;
21
•the potential length of the regulatory approval process and the period of time during which the TPG Parties may be subject to certain restrictions under the Transaction Agreement;
•TPG’s commitments to take certain actions and agree to certain conditions in order to obtain required regulatory approvals;
•the fact that TPG expects to incur a number of non-recurring costs in connection with the Transactions even if the Closing does not ultimately occur;
•the challenges inherent in the combination of two businesses of the size, scope and complexity of TPG and the AG Companies, including the potential for unforeseen difficulties in integrating operations and systems and difficulties and costs of integrating or retaining employees and clients and maintaining business relationships;
•the risk of diverting TPG management focus and resources from other strategic opportunities and from operational matters, and the potential disruption of TPG management associated with the Transactions and integrating the AG Companies;
•the risk that governmental entities may impose conditions on TPG’s business post-Closing that may adversely affect the ability of TPG to realize the expected benefits of the Transactions; and
•the risk that certain employees of the AG Companies may not choose to remain with the combined company.
The Board of Directors and the Executive Committee determined that overall these potential risks and uncertainties are outweighed by the benefits that the Board of Directors expects to achieve for TPG stockholders as a result of the Transactions. The Board of Directors and the Executive Committee acknowledged that there can be no assurance about future results, including results considered or expected as disclosed in the foregoing reasons.
This discussion of the information and factors considered by the Board of Directors and the Executive Committee includes the principal positive and negative factors, but is not intended to be exhaustive and may not include all of the factors considered by the Board of Directors and the Executive Committee. In view of the wide variety of factors considered in connection with their evaluation of the Transactions, and the complexity of these matters, the Board of Directors and the Executive Committee did not find it useful and did not attempt to rank, quantify or assign any relative or specific weights to the various factors that it considered in reaching their determination to approve the Transaction Agreement and the transactions contemplated thereby and to make the recommendation to TPG stockholders contained in this Information Statement. Rather, the Board of Directors and the Executive Committee viewed their decision as being based on the totality of the information presented to them and the factors they considered. In addition, individual members of the Board of Directors and the Executive Committee may have given differing weights to different factors.
It should be noted that this explanation of the reasoning of the Board of Directors and the Executive Committee and certain information presented in this section is forward-looking in nature and, therefore, that information should be read in light of the factors discussed in the section “Cautionary Note Concerning Forward-Looking Statements” above.
Effect of the Transactions on Existing Stockholders
The Issuance will dilute the ownership percentage and voting interests of our current stockholders in our earnings, if any, voting power and market capitalization.
Opinion of TPG’s Financial Advisor
Ardea rendered its oral opinion, addressed to the Board of Directors and subsequently confirmed in writing by delivery of the Ardea Fairness Opinion, that, as of the date of such opinion and based upon and subject to the factors and assumptions set forth therein, the Consideration to be paid by TOG II for the Acquired Interests pursuant to the Transaction Agreement was fair from a financial point of view to TPG.
The full text of the Ardea Fairness Opinion, which sets forth the assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken in connection with the opinion, is attached to this Information Statement as Annex F. The summary of the Ardea Fairness Opinion contained in this Information Statement is
22
qualified in its entirety by reference to the full text of the Ardea Fairness Opinion. Ardea provided advisory services and its opinion for the information and assistance of the Board of Directors in connection with its consideration of the Transactions. Ardea’s opinion is not a recommendation as to how any TPG stockholders should vote, consent or act with respect to the Transactions or any other matter.
In connection with rendering the opinion described above and performing its related financial analyses, Ardea reviewed, among other things:
•the Transaction Agreement, dated as of May 14, 2023 (and not taking into account any amendments or modifications thereof (references to the “Transaction Agreement” in this section entitled “—Opinion of TPG’s Financial Advisor” and in descriptions elsewhere in this document of Ardea’s opinion refer solely to such version of the Transaction Agreement));
•TPG’s Registration Statement on Form S-1, including the prospectus contained therein, dated January 12, 2022, relating to the initial public offering of Class A Shares;
•annual reports to stockholders and Annual Reports on Form 10‑K of TPG for the two fiscal years ended December 31, 2022;
•certain interim reports to stockholders and Quarterly Reports on Form 10-Q of TPG;
•certain other communications from TPG to TPG stockholders;
•certain publicly available research analyst reports for TPG;
•certain audited financial statements of the AG Companies for the two fiscal years ended December 31, 2021 and certain unaudited financial statements of the AG Companies for the period ended December 31, 2022;
•certain internal financial analyses and forecasts for the AG Company Group Entities and the AG Company Funds, in each case, as prepared by TPG’s management and approved for Ardea’s use by TPG (collectively referred to as the “Forecasts”); and
•certain estimates as to the number of RSUs, the aggregate amount of the Earnout Payment (the “Earnout Amount”) and the sum of the Common Units to be issued at the Closing pursuant to the Transaction Agreement with respect to all of the AG Partners, in each case as prepared by TPG’s management and approved for Ardea’s use by TPG (collectively, the “Transaction Estimates”).
Ardea also held discussions with members of TPG’s senior management regarding their assessment of the strategic rationale for, and the potential benefits of, the Transactions and the past and current business operations, financial condition and future prospects of TPG, the AG Company Group Entities and the AG Company Funds; reviewed the reported price and trading activity for the Class A Shares; compared certain financial information for the AG Company Group Entities and the AG Company Funds and certain financial and stock market information for TPG with similar financial and stock market information for certain other companies, the securities of which are publicly traded; reviewed the financial terms of certain recent business combinations in the alternative asset management industry and in other industries; and performed such other studies and analyses, and considered such other factors, as Ardea deemed appropriate.
For purposes of providing its advisory services and rendering the Ardea Fairness Opinion, Ardea, with TPG’s consent, relied upon and assumed the accuracy and completeness of all of the financial, legal, regulatory, tax, accounting and other information provided to, discussed with or reviewed by Ardea, without assuming any responsibility for independent verification thereof. In that regard, Ardea assumed with TPG’s consent that the Forecasts and the Transaction Estimates were reasonably prepared on a basis reflecting the best currently available estimates and judgments of the management of TPG. In addition, at the direction of TPG, Ardea assumed, for the purposes of rendering the Ardea Fairness Opinion, that each Common Unit and each RSU had a value of $30.00. Furthermore, Ardea noted that the Transaction Agreement provided for the amounts payable by TOG II to be subject to adjustments including adjustments contained in the definitions in the Transaction Agreement of “Alabama Partner Closing Cash Amount,” “Alabama Partner Closing Common Unit Amount,” “Alabama RSU Amount,” “Total Cash Consideration” and “Total Closing Cash Consideration” in Sections 2.4, 2.6, 2.7 and 11.13(f) of the Transaction Agreement and/or based on the Adjustment Escrow Amount (as defined in the Transaction Agreement), the Aggregate Annual Cash Holdback Amount, the API Representative Reserve
23
Amount (as defined in the Transaction Agreement), the Balance Sheet Adjustment Amount (as defined in the Transaction Agreement), the Client Consent Adjustment Factor (as defined in the Transaction Agreement), the Earnout Amount and the Founder Payment Amount (as defined below in the section entitled “The Transaction Agreement and Related Agreements—Amounts Payable”). At the direction of TPG, Ardea did not take into account, and did not express an opinion on, the issuance of Class B Shares or any of the foregoing adjustments other than the Aggregate Annual Cash Holdback Amount and the Earnout Amount, each of which, at TPG’s direction, Ardea assumed would be equal to the applicable amounts set forth in the Transaction Estimates (such adjustments, other than the Aggregate Annual Cash Holdback Amount and the Earnout Amount, the “Excluded Adjustments”). Ardea did not make an independent evaluation or appraisal of the assets and liabilities (including any contingent, derivative or other off-balance-sheet assets and liabilities) of TPG, the AG Company Group Entities, the AG Company Funds or any of their respective subsidiaries, and Ardea was not furnished with any such evaluation or appraisal. Ardea assumed that all governmental, regulatory or other consents and approvals necessary for the consummation of the Transactions will be obtained without any adverse effect on TPG, the AG Company Group Entities or the AG Company Funds or on the expected benefits of the Transactions in any way meaningful to Ardea’s analysis. Ardea also assumed that the Transactions will be consummated on the terms set forth in the Transaction Agreement, without the waiver or modification of any term or condition therein, the effect of which would be in any way meaningful to Ardea’s analysis.
The Ardea Fairness Opinion did not address the underlying business decision of TPG to engage in the Transactions or the relative merits of the Transactions as compared to any strategic alternatives that may be available to TPG; nor did it address any legal, regulatory, tax or accounting matters. The Ardea Fairness Opinion addressed only the fairness from a financial point of view to TPG, as of the date of such opinion, of the Consideration to be paid by TOG II for the Acquired Interests pursuant to the Transaction Agreement. The Ardea Fairness Opinion did not express any view on, and did not address, any other term or aspect of the Transaction Agreement or the Transactions or any term or aspect of any other agreement or instrument contemplated by the Transaction Agreement or entered into or amended in connection with the Transactions, including those certain related agreements contained in the definition of “Transaction Documents” in the Transaction Agreement and referred to in the Ardea Fairness Opinion (collectively, the “Ancillary Agreements”); any allocation of, or method of determining the allocation of, the Consideration; any issuance, transfer or exchange of the Class B Shares, the Excluded Adjustments; the Pre-Closing Reorganizations; the representation and warranty insurance policy obtained by TOG II in connection with the Transactions; and any ongoing or post-Closing rights or obligations of any of the parties to the Transaction Agreement or the Ancillary Agreements (including those set forth in Sections 6.11, 6.18, 6.29 and 10.2 through 10.7 of the Transaction Agreement).
In addition, Ardea’s opinion did not express any view on, and did not address, whether relative to the Consideration or otherwise, either (i) the fairness of the Transactions to, or any consideration received in connection therewith by, the holders of any class of securities, creditors, partners, officers, directors or employees of any of the TPG Parties, AG Founder Trust, the API Entities (together with AG Founder Trust, the “API Sellers”), the AG Company Group Entities, the AG Company Funds or other constituencies of any of the TPG Parties, the API Sellers, the AG Company Group Entities or the AG Company Funds; or (ii) the fairness of the amount or nature of any compensation to be paid or payable to any of the partners, officers, directors or employees of any of the TPG Parties, the API Sellers, the AG Company Group Entities or the AG Company Funds, or any class of such persons in connection with the Transactions. Ardea did not express any opinion as to the prices at which shares of TPG’s common stock or the Common Units will trade at any time; as to the potential effects of volatility in the credit, financial and stock markets on the Transactions or any of the TPG Parties, the API Sellers, the AG Company Group Entities or the AG Company Funds; as to the impact of the Transactions on the solvency or viability of any of the TPG Parties, the API Sellers, the AG Company Group Entities, the AG Company Funds or any other party to the Transaction Agreement or any of the Ancillary Agreements; or as to the ability of any of the TPG Parties, the API Sellers, the AG Company Group Entities, the AG Company Funds or any other party to the Transaction Agreement or any of the Ancillary Agreements to pay their respective obligations when they come due. Ardea’s opinion was necessarily based on economic, monetary, market and other conditions as in effect on, and the information made available to Ardea as of, the date of its opinion and Ardea assumes no responsibility for updating, revising or reaffirming its opinion based on circumstances, developments or events occurring after the date of the Ardea Fairness Opinion. Ardea’s advisory services and the opinions expressed in the Ardea Fairness Opinion were provided for the information and assistance of the Board of Directors in connection with its consideration of the Transactions and the Ardea Fairness Opinion does not constitute a recommendation as to how any TPG stockholder should vote, consent or act with respect to the Transactions or any other matter. Ardea’s opinion was approved by a fairness committee of Ardea.
24
Summary of Ardea Financial Analysis
The following is a summary of the material financial analyses delivered by Ardea to the Board of Directors in connection with rendering the opinion described above. The following summary, however, does not purport to be a complete description of the financial analyses performed by Ardea, nor does the order of analyses described represent relative importance or weight given to those analyses by Ardea. Some of the summaries of the financial analyses include information presented in tabular format. The tables must be read together with the full text of each summary and are alone not a complete description of Ardea’ financial analyses. Except as otherwise noted, the following quantitative information, to the extent that it is based on market data, is based on market data as it existed on or before May 5, 2023 and is not necessarily indicative of current market conditions.
Implied Enterprise Value of the AG Company Group Entities
Using the Forecasts and Transaction Estimates and following the direction of TPG, Ardea calculated the implied enterprise value (“EV”) for the Transactions by first, adding $163,000,000 (the approximate net present value of the Earnout Amount as of December 31, 2022, which calculation is described below) to $3,000,000,000 (representing (i) the cash, including the Aggregate Annual Cash Holdback Amount; (ii) the Common Units; and (iii) the RSUs, including RSUs allocated to future employees of the AG Company Group Entities, to be paid as consideration) to arrive at an implied equity value of approximately $3,163,000,000; and then, deducting approximately $164,000,000 of net cash from the implied equity value to arrive at an implied EV of approximately $2,999,000,000.
Calculation of the Net Present Value of the Earnout Amount
At the direction of management of TPG, Ardea used fiscal year 2026 (“2026E”) as the measurement year for the purposes of calculating the estimated Earnout Amount. Using the Forecasts, Ardea calculated the 2026E Earnout Amount, and applied an end-of-year discounting convention and a discount rate of 14.25%, which is the midpoint of discount rates Ardea used in its discounted cash flow analysis (see “—Discounted Cash Flow Analysis” below), to discount the 2026E Earnout Amount to its net present value, as of December 31, 2022, to arrive at an amount equal to approximately $163,000,000.
Discounted Cash Flow Analysis
Using the Forecasts, Ardea conducted a discounted cash flow analysis to derive a range of implied EVs for the AG Company Group Entities on a standalone basis.
Using a mid-year discounting convention and discount rates ranging from 13.50% to 15.00%, reflecting estimates of the AG Company Group Entities’ cost of equity, on a standalone basis, Ardea derived a range of implied EVs for the AG Company Group Entities, by discounting to present value as of December 31, 2022 (i) estimates of the free cash flows of the AG Company Group Entities for the fiscal years 2023 (“2023E”) through 2027 (“2027E”) based on the Forecasts; and (ii) a range of implied terminal EVs of the AG Company Group Entities, calculated by Ardea using perpetuity growth rates of 2.50% to 3.50%, which analysis implied after-tax distributable earnings (“A-T DE”) multiples for the fiscal year 2024 (“2024E”) ranging from 11.1x to 13.9x. This analysis implied a range of implied EVs for the AG Company Group Entities of approximately $2,442,000,000 to $3,092,000,000.
The range of discount rates was derived by Ardea based on its professional judgment and by application of the Capital Asset Pricing Model, which takes into account certain company-specific inputs, including the AG Company Group Entities’ target capital structure weightings, the cost of long-term debt, applicable marginal cash tax rate and a beta for the company, as well as certain financial metrics for the U.S. financial markets generally. The range of perpetuity growth rates was derived by Ardea utilizing its professional judgment and experience, taking into account the Forecasts and market expectations regarding long-term real growth of gross domestic product and inflation.
25
Selected Transactions Analysis
Ardea reviewed and analyzed, to the extent publicly available, certain financial information relating to several transactions (the “Selected Transactions”) that Ardea, based on its experience and professional judgment, deemed relevant to consider in relation to the Transactions.
While none of the target companies that participated in the Selected Transactions are directly comparable to the AG Company Group Entities and none of the Selected Transactions are directly comparable to the Transactions, Ardea selected such transactions because the transaction terms and financial results of the Selected Transactions are publicly available and each of the target companies in the Selected Transactions had operations and businesses in the alternative asset management industry, which, for the purposes of Ardea’s analysis, may be considered sufficiently similar to those of the AG Company Group Entities based on business sector participation, operational characteristics and financial metrics. The reasons for and the circumstances surrounding each of the Selected Transactions analyzed were diverse and there are inherent differences in the business, operational and/or financial conditions and prospects of the AG Company Group Entities and the target companies included in the Selected Transactions analysis. The analyses necessarily involve complex considerations and judgments concerning differences in financial and operational characteristics of the companies involved and other factors that could affect the target companies involved in the Selected Transactions differently than they would affect the AG Company Group Entities.
Using publicly available information and Wall Street research analyst estimates as of May 5, 2023, for each of the Selected Transactions, Ardea calculated the implied EV of the applicable target company, based on the consideration paid in the Selected Transaction, as a multiple of the target company’s earnings before interest, taxes, depreciation and amortization (“EBITDA”, and such multiple in the table below, the “EV/EBITDA Transaction Multiple”).
The following table presents the results of this analysis:
| Announcement Date | Selected Transactions | EV/EBITDA Transaction Multiple | ||||||||||||||||||
| Acquiror | Target | |||||||||||||||||||
March 2019 | Brookfield Asset Management, Inc. | Oaktree Capital Group, LLC | 11.5x (1) | |||||||||||||||||
December 2018 | Sun Life Financial Inc. | BentallGreenOak | 12.0x (2) | |||||||||||||||||
January 2016 | Legg Mason Inc. | Clarion Partners | 9.5x (3) | |||||||||||||||||
___________________
(1)Based on Wall Street research analyst consensus estimate FY+1 EBITDA multiple.
(2)Based on Sun Life Financial Inc.’s management-stated estimated EBITDA multiple for 2019.
(3)Based on Legg Mason Inc.’s management-stated first year from close of transaction forward EBITDA multiple.
Selected Companies Analysis
Ardea reviewed and analyzed certain financial information of the AG Company Group Entities and compared it to corresponding financial information of certain publicly traded companies (the “Selected Companies,” and each, a “Selected Company”) that Ardea deemed comparable, based on its experience and professional judgment, to the AG Company Group Entities.
The Selected Companies were selected, among other reasons, because they are publicly traded companies with operations and businesses in the alternative asset management industry, which, for the purposes of Ardea’s analysis, may be considered sufficiently similar to those of the AG Company Group Entities based on business sector participation, operational characteristics and financial metrics. However, none of the Selected Companies reviewed is identical to AG Company Group Entities and certain of these Selected Companies have financial and operating characteristics that are materially different from those of the AG Company Group Entities.
26
The Selected Companies were:
•Blackstone Inc.;
•KKR & Co. Inc.;
•Brookfield Asset Management, Inc.;
•Apollo Global Management Inc.;
•Ares Management Corporation;
•Blue Owl Capital, Inc.; and
•Carlyle Group Inc.
Using the publicly available information and the Wall Street analyst consensus estimates as of May 5, 2023, for each of the Selected Companies, Ardea reviewed and calculated the following multiples.
•EV / 2023E EBITDA, which is defined as the EV divided by the 2023E EBITDA;
•EV / 2024E EBITDA, which is defined as the EV divided by the 2024E EBITDA;
•P / 2023E A-T DE, which is defined as the per share closing price on May 5, 2023 divided by the 2023E A-T DE per share; and
•P / 2024E A-T DE, which is defined as the per share closing price on May 5, 2023 divided by the 2024E A-T DE per share.
For the purposes of this analysis, and using publicly available data sources and Wall Street research analyst consensus estimates as of May 5, 2023, Ardea calculated the EV of each Selected Company by summing (i) the market value of its fully diluted equity, using the closing stock price as of May 5, 2023; plus (ii) net debt (equal to total debt plus preferred equity minus cash and cash equivalents); plus (iii) non-controlling interest; minus (iv) net accrued performance revenues.
The P / 2023E A-T DE, P / 2024E A-T DE, EV / 2023E EBITDA and EV / 2024E EBITDA multiples for each Selected Company are set forth in the table below:
| Selected Company | P / 2023E A-T DE | P / 2024E A-T DE | EV / 2023E EBITDA | EV / 2024E EBITDA | ||||||||||||||||||||||
Blackstone Inc. (1) | 18.6x | 13.9x | 14.3x | 10.2x | ||||||||||||||||||||||
KKR & Co. Inc. (2) | 13.9x | 10.5x | 12.2x | 9.3x | ||||||||||||||||||||||
Brookfield Asset Management, Inc. (2) | 24.1x | 20.3x | 19.5x | 15.9x | ||||||||||||||||||||||
Apollo Global Management Inc. (2) | 9.4x | 8.2x | 8.0x | 6.9x | ||||||||||||||||||||||
Ares Management Corporation (1) | 21.6x | 16.2x | 20.1x | 17.6x | ||||||||||||||||||||||
Blue Owl Capital, Inc. (1) | 15.6x | 12.4x | 16.5x | 12.6x | ||||||||||||||||||||||
Carlyle Group Inc. (1) | 9.1x | 6.4x | 6.4x | 4.2x | ||||||||||||||||||||||
____________________
(1)Financial data as of Q1 2023.
(2)Financial data as of Q4 2022.
27
Using the results of the analysis above, Ardea calculated the 25th percentile, mean, median and 75th percentile of the P / 2023E A-T DE, P / 2024E A-T DE, EV / 2023E EBITDA and EV / 2024E EBITDA multiples of the Selected Companies, which results are set forth in the table below:
| P / 2023E A-T DE | P / 2024E A-T DE | EV / 2023E EBITDA | EV / 2024E EBITDA | |||||||||||||||||||||||
| 25% | 11.7x | 9.3x | 10.1x | 8.1x | ||||||||||||||||||||||
| Mean | 16.1x | 12.6x | 13.9x | 11.0x | ||||||||||||||||||||||
| Median | 15.6x | 12.4x | 14.3x | 10.2x | ||||||||||||||||||||||
| 75% | 20.1x | 15.0x | 18.0x | 14.2x | ||||||||||||||||||||||
General
The preparation of a fairness opinion is a complex process and is not necessarily susceptible to partial analysis or summary description. Selecting portions of the analyses or of the summary set forth above, without considering the analyses as a whole, could create an incomplete view of the processes underlying Ardea’s opinion. In arriving at its fairness determination, Ardea considered the results of all of its analyses and did not attribute any particular weight to any factor or analysis considered by it. Rather, Ardea made its determination as to fairness on the basis of its experience and professional judgment after considering the results of all of its analyses. No company or transaction used in the above analyses as a comparison is directly comparable to TPG or the AG Company Group Entities or the Transactions.
Ardea prepared these analyses for purposes of providing its opinion to the Board of Directors as to the fairness of the Consideration to be paid by TOG II for the Acquired Interests pursuant to the Transaction Agreement from a financial point of view to TPG. These analyses do not purport to be appraisals nor do they necessarily reflect the prices at which businesses or securities actually may be sold. Analyses based upon forecasts of future results are not necessarily indicative of actual future results, which may be significantly more or less favorable than suggested by these analyses. Because these analyses are inherently subject to uncertainty, being based upon numerous factors or events beyond the control of the parties or their respective advisors, none of TPG, the API Sellers, the AG Company Group Entities, Ardea or any other person assumes responsibility if future results are materially different from those forecasted.
The aggregate amount payable under the Transaction Agreement was determined through arm’s-length negotiations between TPG and the API Sellers and was approved by the Board of Directors and the Executive Committee. Ardea provided advice to TPG during these negotiations. Ardea did not, however, recommend any specific consideration to TPG, the Board of Directors or the Executive Committee or that any specific amount of consideration constituted the only appropriate consideration for the Transactions.
As described above, Ardea’s opinion to the Board of Directors was one of many factors taken into consideration by the Board of Directors and the Executive Committee in making their determination to approve the Transaction Agreement. The foregoing summary does not purport to be a complete description of the analyses performed by Ardea in connection with the fairness opinion and is qualified in its entirety by reference to the Ardea Fairness Opinion.
Ardea is engaged in underwriting services, private placements of securities, merger and acquisition advisory services, investment banking and other financial and non-financial activities and services for various persons and entities. Ardea and its employees and affiliates, and funds or other entities they manage or in which they invest or have other economic interests or with which they co-invest, may at any time purchase, sell, hold or vote long or short positions and investments in securities, derivatives, loans, commodities, currencies, credit default swaps and other financial instruments of the TPG Parties, the AG Partners, the API Sellers, the API Representative, the AG Company Group Entities, the AG Company Funds, the individuals or entities listed on Annex B and Annex C of the Transaction Agreement and any of their respective affiliates, portfolio companies and third parties, or any currency or commodity that may be involved in the Transactions. Ardea has acted as financial advisor to TPG in connection with, and has participated in certain of the negotiations leading to, the Transactions. Ardea has provided certain investment banking services to TPG and/or its affiliates and portfolio companies from time to time for which Ardea has received, and may receive, compensation, including having acted as a financial advisor to TPG in connection with the initial public offering of Class A Shares in January 2022. During the two-year period ended May 15, 2023, Ardea recognized compensation for investment banking services provided to TPG and/or its affiliates and portfolio companies of approximately $3,500,000. During the two-year period ended May 15, 2023, Ardea was not engaged by the API Sellers, the AG Company Group Entities or any of their affiliates, and/or as applicable, portfolio companies for which Ardea has recognized compensation. In the future, Ardea
28
may provide investment banking services to the TPG Parties, the API Sellers, the AG Company Group Entities, the AG Company Funds, and their respective affiliates and portfolio companies, for which Ardea may receive compensation. Affiliates of Ardea also may have co-invested with the TPG Parties, the API Sellers, the AG Company Group Entities, the AG Company Funds and any of their respective affiliates from time to time, and also may have invested in limited partnership units of affiliates of the TPG Parties, the API Sellers, the AG Company Group Entities or the AG Company Funds from time to time and may do so in the future.
The Board of Directors selected Ardea as its financial advisor because it is an internationally recognized investment banking firm that has substantial experience in transactions similar to the Transactions. Pursuant to the Engagement Letter, TPG engaged Ardea to act as its financial advisor in connection with the Transactions. The Engagement Letter provides for a transaction fee of $16,000,000, all of which is payable following and subject to consummation of the Transactions. In addition, TPG has agreed to reimburse certain of Ardea’s expenses arising, and indemnify Ardea against certain liabilities that may arise, out of Ardea’s engagement.
Financing of the Transactions
The Transactions are not subject to a financing condition. TPG expects to fund the cash consideration for the Transactions by drawing $470.0 million under its Senior Unsecured Revolving Credit Facility and paying the remainder with cash on hand.
On September 26, 2023, TOG I, TOG II, TOG III and Holdings II Sub, each as co-borrowers, entered into an amendment and restatement of the Senior Unsecured Revolving Credit Facility to, among other things, (i) extend the maturity date of the revolving credit facility from July 15, 2027 to September 26, 2028; (ii) increase the aggregate revolving commitments thereunder from $700 million to $1.2 billion; (iii) provide for additional flexibility with respect to internal reorganizations; and (iv) provide for certain limited condition availability provisions, and other adjustments, in connection with the Transactions.
On September 26, 2023, TOG II, as borrower, and TOG I, Holdings II Sub and TOG III, each as guarantors, entered into an amendment and restatement of the Senior Unsecured Term Loan Agreement to, among other things, (i) extend the maturity date of the term credit facility from December 2, 2024 to March 31, 2026; (ii) provide for additional flexibility with respect to internal reorganizations; and (iii) provide for certain other adjustments in connection with the Transactions.
TPG elected to proactively secure these changes to the Senior Unsecured Revolving Credit Facility and Senior Unsecured Term Loan Agreement to provide additional financial flexibility and bolster its liquidity position in anticipation of the consummation of the Transactions.
Material United States Federal Income Tax Consequences of the Transactions
It is expected that the Transactions will not result in any material U.S. federal income tax consequences to holders of Class A Shares.
Accounting Treatment
TPG prepares its financial statements in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). The Transactions will be accounted for as a business combination using the acquisition method of accounting, with TPG treated as the acquirer for financial reporting purposes. The preliminary allocation of the total amounts payable in the Transactions is based upon management’s estimates of and assumptions related to the fair value of assets acquired and liabilities assumed. Angelo Gordon’s operating results will be consolidated in TPG’s financial statements beginning on the Closing Date. For combined financial information giving effect to the Transactions, see “Unaudited Pro Forma Condensed Consolidated Financial Information.”
29
Regulatory Approvals
Each of the parties has agreed to, if required by law, within 20 business days following the date of the Transaction Agreement, file or supply all notifications and information required to be filed or supplied pursuant to the HSR Act in connection with the Transactions.
Each of the parties has agreed to, as promptly as practicable following the date of the Transaction Agreement, make all other filings and submissions under antitrust law or other law applicable to the TPG Parties, AG Companies, API Entities or to their subsidiaries and affiliates, as may be required to consummate the Transactions, and use reasonable best efforts (which will not require any payment or concession to any person in connection with obtaining such person’s consent) to obtain all other authorizations, approvals, consents and waivers from all persons or governmental authorities as is necessary to consummate the Transactions. These approvals include antitrust approvals under the laws of certain other jurisdictions and written consents from the SFC in Hong Kong and the FCA in the United Kingdom.
HSR Act and U.S. Antitrust Matters
The Closing is conditioned upon all required filings under the HSR Act having been made and the termination or expiration of all applicable waiting periods (and any extensions) thereunder. A transaction notifiable under the HSR Act may not be completed until the expiration or termination of a 30-day waiting period following the parties’ filings of their HSR Act notification and report forms. If the FTC or the DOJ issues a request for additional information and documentary materials (the “Second Request”) prior to the expiration of the initial waiting period, the parties must observe a second 30-day waiting period, which would begin to run only after the parties have substantially complied with the Second Request, unless the waiting period is terminated earlier or the parties otherwise agree to extend the waiting period. The parties made the required filings with the FTC and the DOJ on June 8, 2023, and the initial 30-day waiting period expired at 11:59 p.m. Eastern time on July 10, 2023.
At any time before or after consummation of the Transactions, notwithstanding the termination or expiration of the waiting period under the HSR Act, the FTC or the DOJ could take such action under the antitrust laws as it deems necessary or desirable in the public interest, including seeking to enjoin the completion of the Transactions, seeking divestiture of substantial assets of the parties, or requiring the parties to license or hold separate assets or terminate existing relationships and contractual rights. At any time before or after the completion of the Transactions, any state could take such action under the antitrust laws as it deems necessary or desirable in the public interest. Such action could include seeking to enjoin the completion of the Transactions or seeking divestiture of substantial assets of the parties. Private parties may also seek to take legal action under the antitrust laws under certain circumstances. We cannot be certain that a challenge to the Transactions will not be made or that, if a challenge is made, we will prevail.
Other Antitrust Clearances
The Closing is conditioned upon all required filings under the Dutch Competition Act (1997), as amended, the Act Against Restraints of Competition in Germany, the Monopoly Regulation and Fair Trade Act in Korea, and to the extent applicable, certain other jurisdictions, having been made and the termination or expiration of all applicable waiting periods (and any extensions thereof) thereunder. The parties made the required filing with the Federal Cartel Office under the Act Against Restraints of Competition in Germany on June 28, 2023, and received clearance on July 5, 2023. The parties made the required filing with the Authority for Consumers and Markets under the Dutch Competition Act (1997), as amended, on June 30, 2023, and received clearance on July 19, 2023. The parties made the required filing with the Korea Fair Trade Commission under the Monopoly Regulation and Fair Trade Act in Korea on August 10, 2023, and received clearance on September 22, 2023.
30
Financial Conduct Authority
The Closing is conditioned upon the receipt of written consent from the FCA. Section 178 of the FSMA requires TPG (and any other potential controllers, including relevant affiliates of TPG, to the extent required) to apply for pre-approval from the FCA before acquiring control of AG Europe, a wholly owned subsidiary of AG OpCo, that is authorized and regulated by the FCA. In addition, Section 191D of the FSMA obliges any person with an existing threshold interest in AG Europe to give the FCA prior notice if, as a result of the transaction, their holding would fall below certain thresholds. This obligation requires a notification only, and FCA pre-approval is not required to dispose of control. Any failure by an existing controller to give such prior notice of an intended reduction in their holding below specific thresholds is also a criminal offense. Finally, under the FCA’s rules, a failure by AG Europe to make its own notification to the FCA of the proposed change in control could result in FCA action being taken against it. This obligation requires a notification only, and AG Europe does not separately need to obtain FCA pre-approval. The proposed incoming controllers submitted their application to the FCA for pre-approval on June 21, 2023. The FCA approved the application on September 1, 2023 (and such approval will remain valid until November 23, 2023 absent extensions from the FCA).
Securities & Futures Commission
The Closing is conditioned upon the receipt of written consent from the SFC in Hong Kong. Pursuant to the Transaction Agreement, TPG must obtain consent from the SFC for certain TPG entities and individuals to become substantial shareholders, as defined under the SFO, of AG Hong Kong, a subsidiary of AG OpCo, as contemplated under the Transaction Agreement by filing the new substantial shareholder applications and information on TPG specified under section 402 of the SFO together with any other information required by the SFC. The new substantial shareholder applications were filed by TPG on July 26, 2023.
No Vote Required in Connection with the Transactions
No further vote or consent of the interest holders of the API Entities, AG Founder Trust, AG Company Group Entities (as defined herein) or of our stockholders is required to consummate the Transactions.
No Appraisal Rights in Connection with the Transactions
The DGCL does not provide dissenters’ rights of appraisal to our stockholders in connection with the matters discussed in this Information Statement.
31
THE TRANSACTION AGREEMENT AND RELATED AGREEMENTS
Explanatory Note Regarding the Transaction Agreement
This section describes the material terms of the Transaction Agreement and related agreements. The description in this section and elsewhere in this Information Statement is qualified in its entirety by reference to the complete text of the Transaction Agreement, which is incorporated by reference herein. This summary does not purport to be complete and may not contain all of the information about the Transaction Agreement or related agreements that is important to you. We encourage you to read the full text of the Transaction Agreement attached as Annex A, the A&R Investor Rights Agreement attached as Annex B, the A&R Exchange Agreement attached as Annex C and the A&R Tax Receivable Agreement attached as Annex D, carefully. This section is not intended to provide you with any factual information about us. Such information can be found elsewhere in this Information Statement and in our filings with the SEC. See “Where You Can Find More Information” below.
The representations, warranties and covenants made in the Transaction Agreement by the parties thereto are qualified and subject to important limitations agreed to by the contracting parties in connection with negotiating the terms of the Transaction Agreement. The representations and warranties may also be subject to a contractual standard of materiality different from those generally applicable to stockholders and in some cases are modified in important part by the underlying confidential disclosure schedules, which are not publicly filed, or by our public reports filed with the SEC. In particular, the representations and warranties contained in the Transaction Agreement were negotiated with the principal purposes of establishing the circumstances under which a party to the Transaction Agreement may have the right not to close the Transactions if the representations and warranties of the other party prove to be untrue and allocating contractual risk between the parties to the Transaction Agreement, rather than establishing matters as facts. Moreover, information concerning the subject matter of the representations and warranties, which do not purport to be accurate as of the date of this Information Statement, may have changed since the date of the Transaction Agreement and subsequent developments or new information qualifying a representation or warranty may not have been included in this Information Statement.
The Transactions
Pursuant to the Transaction Agreement and the other transaction documents, and subject to the terms and conditions contained therein, TOG II has agreed to acquire all of the outstanding limited partnership interests in AG OpCo and AG CarryCo, as well as all the outstanding limited liability company interests in the API GP and limited partnership interests in API, and:
•TPG, TOG II and TPG GP will effectuate the Pre-Closing TPG Transactions, following which all outstanding limited partnership interests in TOG I and TOG III will be directly or indirectly held by TOG II;
•the API Entities, API, AG OpCo, AG CarryCo and AG Founder Trust will effectuate the Pre-Closing AG Transactions, following which all outstanding limited partnership interests in Angelo Gordon will be held by the API Entities and API;
•following the Pre-Closing Reorganizations, TOG II will acquire, directly or indirectly, from the API Entities, all of the outstanding limited partnership interests in AG OpCo and AG CarryCo that are held by the API Entities; and
•thereafter, among other things, (i) AG Founder Partners will each sell a portion of their interest in API to TOG II, (ii) in accordance with the Delaware Revised Uniform Limited Partnership Act, API will merge with and into TOG II, and upon consummation of the Merger, API will cease to exist as a separate legal entity, and TOG II will continue as the surviving partnership and (iii) TOG II will acquire from the API GP Managing Members all of the outstanding limited liability company interests in API GP.
32
Closing; Effective Time of the Merger
The Transaction Agreement provides that, unless another date is agreed to in writing by the API Representative and TOG II, the Closing will take place on the first business day of the calendar month occurring at least two business days after the first date on which all of the conditions to the Closing are satisfied or waived (other than those conditions which, by their terms, are to be satisfied or waived at the Closing, but subject to the satisfaction or waiver of such conditions). The date on which the Closing actually takes place is referred to in this Information Statement as the “Closing Date.”
At the Closing, TOG II and the API Representative will file a certificate of merger with the Secretary of State of the State of Delaware. The Merger will become effective at the Effective Time.
Amounts Payable
The aggregate amount payable in connection with the Transactions, including the Merger will consist of (i) an estimated $709.4 million in cash (based on an assumed level of net cash and current assets of the AG Companies as of the date of this Information Statement), subject to certain adjustments; (ii) up to 62.5 million Common Units (and an equal number of Class B Shares) and RSUs that, subject to the terms and conditions of the RSUs, will settle in Class A Shares, in each case, subject to certain adjustments set forth in the Transaction Agreement; (iii) rights to the Aggregate Annual Cash Holdback Amount; and (iv) rights to the Earnout Payment.
The aggregate amounts payable (excluding the Earnout Payment) consists of:
•to each AG Partner:
•an amount of cash (which will account for 90% of each AG Founder Partner’s consideration and will generally account for 15% of each AG Non-Founder Partner’s consideration), calculated based on such AG Partner’s ownership percentage of $3,000,000,000, subject to (i) adjustment for the Client Consent Percentage obtained by the AG Companies; (ii) certain adjustments relating to the balance sheets, transaction expenses and indebtedness of the AG Companies; and (iii) solely in respect of AG Non-Founder Partners, reduction for the AG RSU Amount, the Aggregate Annual Cash Holdback Amount and the Founder Payment Amount (in each case, as further described below); and
•a number of Common Units (which will account for 10% of each AG Founder Partner’s consideration and generally account for 85% of each AG Non-Founder Partner’s consideration) and an equal number of Class B Shares (in each case, to be issued to and held by Founder Holdings A or Founder Holdings G, as applicable, on such AG Partner’s behalf), calculated based on a deemed value of $30.00 per unit and such AG Partner’s ownership percentage of $3,000,000,000, subject to adjustment for (i) the Client Consent Percentage obtained by the AG Companies and (ii) solely in respect of AG Non-Founder Partners, reduction for the AG RSU Amount, the Aggregate Annual Cash Holdback Amount and the Founder Payment Amount.
•to the AG Non-Founder Partners, an amount of cash payable in up to three payments of up to $50,000,000 each, in the aggregate reflecting the Aggregate Annual Cash Holdback Amount, calculated based on the amount of certain performance fees of the AG Companies received during each of the calendar years 2024, 2025 and 2026.
•to continuing employees of the AG Companies, RSUs with a value between $150,000,000 and $250,000,000 (the “AG RSU Amount”), calculated based on a deemed value of $30.00 per unit.
•to the AG Founder Partners, a cash amount payable of $39,398,566 (the “Founder Payment Amount”).
•to the API GP Managing Members, cash consideration of $100.
33
New API II, Founder Holdings A and Founder Holdings G will be entitled to an Earnout Payment subject to the satisfaction of certain fee-related revenue targets during the period beginning on January 1, 2026 and ending on December 31, 2026. In particular, if the aggregate amount of certain fee-related revenues, net of any discounts, offsets (but including the fee that generated any such offset), expense reimbursements, fee shares, profit shares or similar arrangements of certain clients of the AG Companies:
•is less than or equal to $677,000,000, no Earnout Payment is payable;
•is between $677,000,000 and $807,000,000, an Earnout Payment calculated as a portion of $400,000,000, and based on the amount by which such fee-related revenues of the AG Companies exceeds $677,000,000, is payable; and
•is equal to or greater than $807,000,000, an Earnout Payment of $400,000,000 is payable.
The Earnout Payment is payable, at TOG II’s election, subject to certain limitations, in cash, Common Units (and an equal number of Class B Shares) or a combination thereof.
The Class B Shares to be issued pursuant to the Transaction Agreement, including in connection with the Earnout Equity Payment, will be issued upon TPG’s Charter Amendment becoming effective or such other date on which TPG is permitted to (i) issue Common Units exchangeable pursuant to the A&R Exchange Agreement into Class A Shares in excess of 19.99% as required by NASDAQ Listing Rule 5635(a) and (ii) issue the Class B Stock issuable pursuant to the Transaction Agreement.
For additional information on the amounts payable, including updates, estimates and assumptions, see “Unaudited Pro Forma Condensed Combined Financial Information” below.
Representations and Warranties
The Transaction Agreement contains customary and, in certain cases, reciprocal representations and warranties by the API Entities, AG Companies, AG Founder Trust and the TPG Parties that are (i) subject to specified exceptions and qualifications contained in confidential disclosure schedules and (ii) qualified, in the case of certain representations and warranties by the TPG Parties, by certain information filed by TPG with the SEC, but excluding any risk factor disclosure or disclosure set forth in any forward-looking statements disclaimer or other general statements to the extent they are cautionary, predictive or forward-looking in nature.
The Transaction Agreement contains customary representations and warranties by the API Entities and, in more limited cases, AG Founder Trust, relating to, among other things:
•due organization, valid existence, good standing, requisite power and authority and due qualification to conduct business;
•effectiveness and absence of material violations of organizational documents;
•full power and authority to execute and deliver the Transaction Agreement and other transaction documents;
•absence of, as a result of execution, delivery or performance of the Transaction Agreement or other transaction document or the consummation of the Transactions, any (i) violation of law or permit; (ii) violation or material breach of any organizational document; (iii) required consents; (iv) violation or breach or conflict with or termination of or default under any material contract; or (v) any encumbrance upon properties or assets, subject to certain exceptions and limitations set forth in the Transaction Agreement;
•title to the outstanding limited partnership interests in AG OpCo and AG CarryCo and the limited partnership interests in the API;
•absence of certain liabilities;
•capital structure;
34
•compliance with laws;
•operations and business activity;
•absence of legal proceedings;
•brokers’ or finders’ fees payable in connection with the Transactions; and
•investment purpose, accredited investor and investment experience.
The Transaction Agreement contains customary representations by the AG Companies relating to, among other things:
•due organization, valid existence, good standing, requisite power and authority and due qualification to conduct business;
•effectiveness and absence of violations of organizational documents;
•capital structure;
•full power and authority to execute and deliver the Transaction Agreement and other transaction documents;
•consents and approvals required for the Transactions;
•absence of, as a result of the execution, delivery or performance of the Transaction Agreement or other transaction document or the consummation of the Transactions, any conflict with, material breach of, termination of, contravention or material default under, right of termination, payment, acceleration, vesting or cancellation of or creation of any encumbrance or loss of any material rights under (i) law or permit; (ii) any organizational documents; (iii) any material contracts; or (iv) any “key person” or “for cause” event (or similar concept) under any fund documentation;
•financial statements, disclosure controls and procedures;
•absence of undisclosed liabilities;
•absence of certain changes and conduct of business;
•title to assets;
•owned real property and certain real property leases;
•existence of and compliance with certain material contracts;
•legal proceedings and disputes with clients and investors;
•affiliate transactions and contracts;
•compliance with applicable laws and regulations and the holding of necessary permits or other authorizations;
•certain investment funds or other vehicles organized, sponsored, promoted, managed, controlled or advised by any of the AG Company Group Entities or any of their respective controlled affiliates (the “AG Company Funds”), including due organization, valid existence, good standing, requisite power and authority and due qualification to conduct business of such funds, material fund documentation relating to the AG Company Funds, client contracts funds, compliance of the AG Company Funds with the Investment Advisers Act of 1940 (the “Advisers Act”) and financial statements of the AG Company Funds;
•Employee Retirement Income Security Act of 1974 (“ERISA”) matters;
35
•tax matters;
•employee benefit plan and other employee matters;
•intellectual property, data privacy and data security matters;
•insurance matters;
•brokers’ or finders’ fees payable in connection with the Transactions; and
•labor and employment matters.
The Transaction Agreement contains a more limited set of representations by the TPG Parties relating to, among other things, the following:
•due organization, valid existence, good standing, requisite power and authority and due qualification to conduct business;
•full power and authority to execute and deliver the Transaction Agreement and other transaction documents;
•absence of, as a result of execution, delivery or performance of the Transaction Agreement or other transaction document or the consummation of the Transactions, any (i) violation of law or permit; (ii) violation or material breach of any organizational document; (iii) required consents; (iv) violation or breach under any material contract; or (v) encumbrance upon properties or assets, subject to certain exceptions and limitations set forth in the Transaction Agreement;
•investment purpose, accredited investor and investment experience;
•absence of legal proceedings;
•brokers’ or finders’ fees payable in connection with the Transactions;
•capitalization;
•issuance of Common Units and Class B Shares;
•subsidiaries;
•filing of SEC documents and financial statements, the absence of material misstatements or omissions in such filings and documents, and compliance of such filings with law;
•tax matters;
•employee benefits matters;
•labor and employment matters;
•intellectual property, data privacy and data security matters;
•no Acquiror Material Adverse Effect; and
•sufficiency of funds.
Many of the representations and warranties in the Transaction Agreement are qualified by a “materiality” or “material adverse effect” standard. That is, they will not be deemed to be untrue or incorrect unless their failure to be true or correct would be material to, or have a material adverse effect with respect to, the party making the representation or warranty.
36
For purposes of the Transaction Agreement, an “Acquiror Material Adverse Effect” means, with respect to the TPG Parties and an “Alabama Material Adverse Effect” means, with respect to the API Entities or the AG Companies, any change, fact, event, circumstance, effect, development, condition or occurrence (each, an “Effect”) which, individually or together with any other Effects, has had, or would reasonably be expected to have, a material adverse effect on (i) the condition (financial or otherwise), results of operations, assets, liabilities or business of the TPG Parties and their subsidiaries or the AG Companies and their subsidiaries (collectively, the “AG Company Group Entities”), as applicable, in either case taken as a whole or (ii) the ability of the TPG Parties, the API Entities, AG Founder Trust or the AG Companies, as applicable, to timely perform their respective obligations under the Transaction Agreement and the other transaction documents or that would materially impede, interfere with, hinder or delay the TPG Parties, or the API Entities, AG Founder Trust or the AG Companies, as applicable, from consummating the transactions contemplated by the Transaction Agreement and the other transaction documents, but excluding any Effect to the extent resulting from:
•Effects that generally affect the industries or segments in which the TPG Parties and their subsidiaries or the AG Company Group Entities, as applicable, principally operate (including legal and regulatory changes after the date of the Transaction Agreement);
•any national, international or any foreign or domestic regional economic, financial, social or political conditions or events in general, including the results of any primary or general elections, or any statements or other proclamations of public officials, or changes in policy related thereto;
•Effects affecting financial, credit or capital markets in the United States or in any other country or region in the world, including changes in interest rates or foreign exchange rates;
•Effects caused by or resulting from an outbreak or escalation of hostilities, acts of terrorism, cyber terrorism, military action, political instability or other national or international calamity, crisis or emergency, an act of God, flood, hurricane, earthquake, other natural disaster, pandemic, epidemic or disease outbreak (including COVID-19), or other nationally declared public health event, including the material worsening of any of the foregoing, or any COVID-19 actions or COVID-19 measures, or any law or order issued by a governmental authority, the Centers for Disease Control and Prevention or the World Health Organization providing for business closures, “sheltering-in-place,” curfews or other restrictions that relate to, or arise out of, any such public health event;
•Effects arising from changes occurring after the date of the Transaction Agreement in taxes, accounting principles or laws (or the interpretation thereof);
•Effects relating to the announcement of the execution of the Transaction Agreement or the transactions contemplated thereby (other than with respect to any representation that specifically addresses the effects of the transactions contemplated by the Transaction Agreement);
•the failure to meet any internal or industry business plans, estimates, expectations, forecasts, projections or budgets for any period (but not the Effects underlying such failure to the extent such Effects would otherwise constitute an Acquiror Material Adverse Effect or Alabama Material Adverse Effect, as applicable);
•any breach of the Transaction Agreement by any API Entity, AG Founder Trust, AG Company or the API Representative or TPG Party, as applicable; or
•solely with respect to an Acquiror Material Adverse Effect, any change in the market price or trading volume of TPG’s stock or the credit rating of TPG or any affiliate of TPG (but not the Effects underlying such change to the extent such Effects would otherwise constitute or contribute to an Acquiror Material Adverse Effect);
except, in the case of the first five bullets above, to the extent that the applicable party and its subsidiaries, taken as a whole, are materially disproportionately affected by such matters as compared to other, similarly situated participants in the industries and geographies in which such parties operate.
37
Conduct of the Business Prior to the Closing
AG Companies Conduct of Business Prior to the Closing
Between the date of the Transaction Agreement and through the earlier of the Closing Date and the termination of the Transaction Agreement, except as expressly contemplated by the Transaction Agreement or pursuant to any law, the AG Companies will, and will cause the AG Company Group Entities to, conduct their respective business and operations in the ordinary course of business consistent with past practice and use commercially reasonable efforts to maintain their assets, properties and goodwill and relationships with their customers, vendors, resellers, partners, contractors, key employees, material business relations and governmental authorities and, without the prior written consent of TOG II (which may not be unreasonably withheld), will not undertake any of the following actions with respect to any AG Company Group Entity, subject to certain exceptions and limitations contemplated by the Transaction Agreement:
•amending organizational documents;
•purchasing or redeeming equity interests other than in the ordinary course;
•making distributions or declaring dividends (other than tax distributions and distributions of carry made in the ordinary course consistent in nature and amount with past practice and certain qualified cash distributions);
•pledging or otherwise disposing of any equity in any other AG Company Group Entity;
•entering into any merger or acquisition transactions, joint ventures, strategic alliances, stockholders’ agreements or similar arrangements, other than joint ventures where only the AG Company Funds are party, ordinary course placement and distribution agreements or in connection with real estate investments where an AG Company Group Entity serves as a non-economic manager in the ordinary course of business;
•settling lawsuits for an amount in excess of $1,000,000 individually or $5,000,000 in the aggregate or in a manner that results in the imposition of material restrictions on any AG Company Group Entity;
•selling, transferring, assigning, pledging or otherwise subjecting to any encumbrance or disposing of any material properties, assets or liabilities, whether tangible or intangible;
•incurring, assuming or guaranteeing any indebtedness or amending the terms relating to any indebtedness, other than indebtedness incurred in the ordinary course of business and in accordance with the terms of the indebtedness documentation;
•making (or becoming obligated to make) any payment in respect of any “claw-back” or similar obligation;
•establishing, amending or terminating any employee benefits plan;
•changing any accounting principle;
•making capital expenditures in excess of $1,000,000 individually or $5,000,000 in the aggregate;
•changing material tax elections and other tax-related actions;
•conducting billing and cash management practices out of ordinary course;
•accelerating payment of management fees, performance fees, incentive fees, transaction fees or other similar fees;
•making loans;
•entering into any plan of merger, consolidation, reorganization, liquidation restructuring, recapitalization or dissolution or filing of a bankruptcy petition;
•materially amending or terminating material contracts or waiving compliance with material terms thereunder;
38
•waiving compliance with any contract between any current or former director, owner, officer or employee and any AG Company Group Entity with restrictive covenants in favor of any AG Company Group Entity that remain in effect;
•taking or omitting to take any action would result in a “key person” or “for cause” event (or similar concept) under any fund documentation;
•incurring deferred rent; and
•making material changes to or incurring any material violations under any policies under the Advisers Act.
In addition, from the date of the Transaction Agreement until the earlier of the Closing Date and the termination of the Transaction Agreement:
•the AG Companies agreed to reasonably cooperate with TOG II to provide information and/or take steps necessary to ensure compliance with ERISA Title I, Section 4975 of the code and any applicable similar law;
•except in the ordinary course of business, the AG Companies will not grant any interest in the management fees, performance fees, carried interest, transaction fees, accounts receivable or other similar fees or revenue streams in respect of the AG Company Funds, subject to certain exceptions; and
•except in the ordinary course of business, the AG Companies will not (i) unless permitted by the Transaction Agreement, hire or terminate any AG Partner; (ii) establish or amend any employee benefits plans or collective bargaining agreements; (iii) increase or grant compensation to individual service providers in excess of certain amounts or grant any loans, bonuses or change or control payments to any individual service provider; (iv) grant or modify awards under any employee benefits plans; or (v) loan money to former member, director, officer, employee or individual service provider of any AG Company Group Entity.
TPG Conduct of Business Prior to the Closing
Between the date of the Transaction Agreement and until the earlier of the Closing Date and the termination of the Transaction Agreement, except as contemplated by the Transaction Agreement, pursuant to any law or as consented to by the API Entities (which many not be unreasonably withheld, conditioned or delayed), TOG II will not take the following actions, subject to certain exceptions and limitations contemplated by the Transaction Agreement:
•amend organizational documents that would disproportionately and adversely affect the API Entities or the AG Partners as compared to other holders of Common Units or conflict with the Transaction Agreement or the other transaction documents;
•declare or pay dividends or distributions on Common Units or Class B Shares, or redeem, repurchase or otherwise acquire any Common Units or Class B Shares, except for (i) regular quarterly cash dividends; (ii) exchanges of Common Units under the existing exchange agreement; (iii) in connection with the settlement or issuances of RSUs (or equivalent equity of TPG); and (iv) repurchases of Common Units at then prevailing market prices pursuant to TOG II’s share repurchase program;
•reorganize, liquidate, dissolve, merge, restructure, recapitalize or consolidate, unless adjustments are made to the number of Common Units or Class B Shares to the extent necessary to provide the API Entities and the AG Partners the same economic effect as contemplated by the Transaction Agreement prior to such event; and
•agree to issue equity interests in TPG for less than fair market value, subject to certain exceptions.
39
Client Consents and Notices
The AG Companies have agreed to use commercially reasonable efforts to obtain the applicable consent from each client (other than a client that is a business development company (“BDC”)) to the (i) “assignment” (as defined in the Advisers Act) or continuation of the contract pursuant to which an AG Company Group Entity provides such client with investment advisory, investment management, investment sub-advisory, administration or similar services, and (ii) any transfer or assignment of interests under the applicable fund documentation, in each case resulting from the consummation of the Transactions. With respect to each client that is a BDC, the AG Companies agreed to use commercially reasonable efforts to cause BDC’s trustees and directors (including at least a majority who are not “interested persons” (as defined in the Investment Company Act of 1940, as amended) of such BDC) to approve a new advisory agreement with the same affiliate of AG OpCo that provides it with investment management or investment advisory services as of the date of the Transaction Agreement. The new advisory agreement would take effect upon the Closing, and must be on terms not less favorable in any material respect in the aggregate to such affiliate of AG OpCo than the terms of the existing applicable advisory agreement.
To obtain these consents, the AG Companies also agreed to send a written notice informing the clients of, and requesting their consent to, the Transactions (including, in the case of BDCs, by using commercially reasonable efforts to call a special meeting of the stockholders).
The AG Company Group Entities must obtain at least an 85% “Client Consent Percentage” in order to meet the closing conditions under the Transaction Agreement. The “Client Consent Percentage” is a percentage calculated based on the annualized investment advisory, investment management, subadvisory or other similar recurring fees (but excluding certain fees and reimbursed expenses) payable to any AG Company Group Entity by certain clients of the AG Companies that have provided the applicable consents and approvals (including the AG Company Funds, but excluding any such clients who have subsequently revoked their consent or to which certain “key person” or “cause” events have been triggered), as a portion of the aggregate revenue run rate for all clients as of March 31, 2023.
Retention Pool
The TPG Parties have agreed to establish a stock-based retention pool under the Omnibus Plan (or applicable NASDAQ exception for non-plan grants) in the aggregate amount of the AG RSU Amount, to promote the retention of continuing employees of the AG Companies and incentivize efforts to consummate the Closing. The aggregate number of RSUs to be granted pursuant to the Retention Program will be calculated based on the AG RSU Amount and a deemed value of $30.00 per RSU. Participants in the Retention Program will be granted RSUs as soon as practicable but not later than 30 days after the Closing Date. As described in “The Transaction Agreement and Related Agreements—Amounts Payable,” the aggregate amount of amounts payable to non-founder partners of API is reduced by the AG RSU Amount.
The RSUs will vest in equal installments on each of the first five anniversaries of the TPG quarterly vesting date preceding the anniversary of the Closing, subject to the participant’s continued employment with the TPG Parties or their affiliates through the applicable vesting dates, and will settle in Class A Shares. If the participant’s services are terminated by the TPG Parties or any of their affiliates without cause, the participant’s RSUs will continue to vest in accordance with the vesting schedule, subject to the participant’s compliance with the restrictive covenants set forth in the RSU grant agreement. In the event of a participant’s termination of services as a result of the participant’s death or disability, the unvested portion of the participant’s RSUs will immediately vest. Each participant who receives a grant of RSUs pursuant to the Retention Program will be subject to certain terms and conditions, including restrictive covenants, as set forth in the participant’s RSU grant agreement.
Regulatory Approvals
Each of the parties has agreed to, if required by law, within 20 business days following the date of the Transaction Agreement, file or supply all notifications and information required to be filed or supplied pursuant to the HSR Act in connection with the Transactions.
Each of the parties has agreed to, as promptly as practicable following the date of the Transaction Agreement, make all other filings and submissions under antitrust law or other law applicable to the TPG Parties, AG Companies, API Entities or to their subsidiaries and affiliates, as may be required to consummate the Transactions, and use reasonable best efforts (which will not require any payment or concession to any person in connection with obtaining such person’s
40
consent) to obtain all other authorizations, approvals, consents and waivers from all persons or governmental authorities as are necessary to consummate the Transactions. In furtherance of the foregoing, each of the parties agreed to:
•coordinate and cooperate with one another in exchanging and providing such information to each other and in making the filings and requests referred to above; and
•supply such reasonable assistance as may be reasonably requested by any other party in connection with the foregoing.
The TPG Parties are required to (and required to cause their affiliates to) use reasonable best efforts to take all actions necessary, proper or advisable to effect the consummation of the transactions contemplated in the Transaction Agreement, subject to certain exceptions. The TPG Parties are also required to use reasonable best efforts in defending, contesting or otherwise resisting any action or order challenging the transactions contemplated by the Transaction Agreement in order to avoid entry of, or to have vacated, lifted, reversed or overturned any such decree, judgment, injunction or other order that is in effect and that prohibits, prevents or restricts consummation of the transactions contemplated by the Transaction Agreement.
The TPG Parties and their affiliates are not permitted to acquire or agree to acquire by any manner, any person or portion thereof, or otherwise acquire or agree to acquire or make any investment in any assets, or agree to a commercial or strategic relationship with any person, if such action would reasonably be expected to:
•impose any material delay in the obtaining of, or materially increase the risk of not obtaining, any consent, approval, authorization, declaration, waiver, license, franchise, permit, certificate or order of any governmental authority necessary to consummate the transactions contemplated by the Transaction Agreement or the expiration or termination of any applicable waiting period; or
•materially increase the risk of any governmental authority entering an order prohibiting the consummation of the transactions contemplated by the Transaction Agreement.
Governance
TPG has agreed to take all such actions necessary to, no later than promptly following the Effective Time:
•cause one person as mutually agreed by TOG II and the API Representative to be appointed to the Board of Directors and the Executive Committee thereof for consecutive one-year terms lasting until the earlier of the two annual meetings of TPG stockholders following the Closing and the Sunset (as defined in the Charter), subject to the terms and conditions of the Transaction Agreement; and
•designate 13 AG Non-Founder Partners to the management committee of TPG until December 31, 2026.
Other Covenants
The Transaction Agreement contains other covenants and agreements, including covenants relating to:
•access by the parties to certain information about each other from the date of the Transaction Agreement to the Closing Date;
•cooperation in connection with press releases and other public announcements;
•the API Entities and AG Company Group Entities using commercially reasonable efforts to deliver certain audited financial statements, unaudited interim financial statements and other financial information;
•certain employee benefits matters;
•officer and director indemnification and insurance matters;
•the delivery of payoff letters in respect of certain indebtedness;
41
•confidentiality;
•cooperation and the provision of information in connection with other financial information and disclosure requirements related to SEC filings and related matters;
•the API Entities and AG Companies using commercially reasonable efforts to provide the TPG Parties with customary cooperation in connection with the arrangement of any potential debt financing;
•AG Companies obligations not to, and the AG Companies obligations to cause the AG Company Group Entities and their and such AG Company Group Entities’ respective officers, directors, employees and representatives not to (i) enter into any alternative transaction; (ii) initiate, solicit proposals or offers, knowingly encourage or engage in discussions or negotiations with any person with respect to an alternative transaction; (iii) furnish to any person any information concerning or relating to any alternative transaction; or (iv) enter into any letter of intent, agreement in principle, acquisition agreement or any other contract (including any confidentiality agreement) with respect to an alternative transaction;
•the AG Companies restricting trading in securities of TPG for directors, officers and employees of the AG Company Group Entities;
•the termination of certain affiliate resignations;
•the receipt of resignations from directors and officers of the AG Company Group Entities; and
•cooperation by the TPG Parties and API Entities in respect of amending the form of A&R Exchange Agreement to be entered into at the Closing.
Closing Conditions
The respective obligations of each of the TPG Parties, the API Entities and the AG Companies to effect the Transactions and consummate the Closing are subject to the fulfillment or waiver, at or prior to the Closing, of the following conditions:
•all required filings under the HSR Act shall have been made and all applicable waiting periods (and any extensions) thereunder shall have terminated or expired;
•all required filings under the Dutch Competition Act (1997), as amended, the Act Against Restraints of Competition in Germany, the Monopoly Regulation and Fair Trade Act in Korea, and to the extent applicable, certain other jurisdictions, shall have been made and all applicable waiting periods (and any extensions) thereunder shall have terminated or expired;
•there shall not be in effect any law, injunction or other order by a governmental authority restraining, enjoining, having the effect of making the transactions contemplated by Transaction Agreement illegal or otherwise prohibiting the consummation of the transactions contemplated by the Transaction Agreement; and
•the receipt of regulatory consents from the SFC in Hong Kong with respect to AG Hong Kong and the FCA in the United Kingdom with respect to AG Europe.
The obligations of the TPG Parties to effect the Transactions and consummate the Closing are additionally subject to the satisfaction or waiver, at or prior to the Closing, of the following conditions:
•subject to certain exceptions and materiality standards provided in the Transaction Agreement, the representations and warranties of the API Entities and the AG Companies must be true and correct as of the date of the Transaction Agreement and as of and as though made on the Closing Date (except to the extent a representation or warranty speaks as of an earlier date, in which case, as of such date);
•the API Entities and the AG Companies shall have performed and complied in all material respects with all agreements and covenants required by the Transaction Agreement to be performed or complied with by them prior to or on the Closing Date;
42
•since the date of the Transaction Agreement, no Alabama Material Adverse Effect shall have occurred and be continuing;
•the Client Consent Percentage shall be at least 85%;
•the API Representative must have delivered a certificate of the AG Companies, executed by an executive officer of the AG Companies, certifying that the conditions described in the preceding four bullets have been satisfied;
•certain key employees of the AG Companies and 80% of the AG Partners shall have executed a Partner Acknowledgment and Joinder Agreement that is in full force and effect and, as of Closing, shall continue to be employed by the AG Company Group Entities (and not have given written notice of such person’s intention to terminate their employment) and, except during any period of disability, shall have continuously devoted their business time and attention to the affairs of the AG Company Group Entities substantially consistent with such service as of immediately prior to the date of the Transaction Agreement;
•the Pre-Closing AG Transactions to be effected by the API Entities, API, AG OpCo, AG CarryCo and AG Founder Trust shall have been effectuated in all material respects; and
•the Founders, AG Partners, AG Companies, API Entities and their respective related parties (other than any AG Partners who have withdrawn in accordance with the terms of the Transaction Agreement) shall have duly executed and delivered to the TPG Parties, a Partner Acknowledgement and Joinder Agreement and certain other transaction documents.
The obligations of the API Entities and the AG Companies to effect the Transactions and consummate the Closing are additionally subject to the satisfaction or waiver, at or prior to the Closing, of the following conditions:
•subject to certain exceptions and materiality standards provided in the Transaction Agreement, the representations and warranties of the TPG Parties must be true and correct as of the date of the Transaction Agreement and as of and as though made on the Closing Date (except to the extent a representation or warranty speaks as of an earlier date, in which case, as of such date);
•the TPG Parties shall have performed and complied in all material respects with all agreements and covenants required by the Transaction Agreement to be performed or complied with by them prior to or on the Closing Date;
•since the date of the Transaction Agreement, no Acquiror Material Adverse Effect shall have occurred and be continuing; and
•TOG II must have delivered a certificate of the TPG Parties, executed by an executive officer of the TPG Parties, certifying that the conditions described in the preceding three bullets have been satisfied.
Indemnification
Pursuant to the Transaction Agreement and subject to the terms and conditions contained therein, following the Closing:
•each AG Partner (severally and not jointly in accordance with their certain respective relative ownership percentages calculated in accordance with the Transaction Agreement) will indemnify the TPG Indemnitees for any losses arising from (i) pre-Closing breaches of any covenant or agreement of any API Entity contained in the Transaction Agreement that survives Closing; (ii) breaches of any covenant or agreement by the API Representative or any pre-Closing covenant of any AG Company contained in the Transaction Agreement that survives Closing; and (iii) fraud by any AG Company or any API Entity;
•each AG Partner will indemnify the TPG Indemnitees for any losses arising from certain other matters set forth in the disclosure schedules to the Transaction Agreement, including certain tax-related matters; and
43
•TOG II will indemnify the AG Partners and their affiliates and each of their respective directors, officers, employees, stockholders, partners, agents representatives, successors and permitted assigns from losses arising from (i) breaches of any covenant or agreement of any TPG Party contained in the Transaction Agreement that survives Closing; (ii) breaches of any post-Closing covenant of any AG Company contained in the Transaction Agreement; and (iii) any fraud of any TPG Party.
Termination of the Transaction Agreement
The Transaction Agreement may be terminated at any time prior to the Closing by mutual written consent of TOG II and the API Representative.
Either TOG II or the API Representative may terminate the Transaction Agreement at any time prior to the Closing under the following circumstances, in each case, upon written notice to the other party:
•if any governmental authority issues an order, enacts or enforces a law or takes any other action permanently preventing, prohibiting, restraining or enjoining the Closing and such action becomes final and non-appealable; provided, that this termination right shall not be available to the party seeking to terminate if the failure of such party or of its affiliates to perform any of their obligations under the Transaction Agreement required to be performed at or prior to the Closing was the primary cause of such issuance, enactment or enforcement of such order, law or other action;
•if there has been a violation, breach or inaccuracy of any representation, warranty, covenant or agreement of the API Entities or the AG Companies (in the case of termination by TOG II) or the TPG Parties (in the case of termination by the API Representative) that would cause the corresponding closing condition (described under “Closing Conditions”) not to be satisfied or to become incapable of being satisfied and such violation, breach or inaccuracy has not been waived by the terminating party or is not cured by the API Entities or the AG Companies (in the case of termination by TOG II) or the TPG Parties (in the case of termination by the API Representative) within the earlier of (i) the Termination Date and (ii) 20 business days after receipt of written notice or is not capable of being cured prior to the Termination Date; provided that no party may exercise this termination right if there has been a violation, breach or inaccuracy of any representation, warranty, covenant or agreement of the API Entities or the AG Companies (in the case of termination by TOG II) or the TPG Parties (in the case of termination by the API Representative) that would cause any of the corresponding closing conditions not to be satisfied as described under “Closing Conditions;” or
•if the Closing Date shall not have occurred on or before the Termination Date; provided, however, that this right to terminate shall not be available to (i) the party seeking to terminate if the failure of such party or of its affiliates to perform any of their obligations under the Transaction Agreement required to be performed at or prior to the Closing was the primary cause of the Closing Date having not occurred on or before the Termination Date; and (ii) any party during the pendency of any proceeding by the other party for specific performance of the Transaction Agreement as described under “Specific Performance.”
In addition, the API Representative may terminate the Transaction Agreement at any time prior to the Closing, upon written notice to TOG II if the written consent of the requisite TPG stockholders sufficient to approve (i) the issuance of Common Units exchangeable pursuant to the A&R Exchange Agreement into Class A Shares in excess of 19.99% as required by NASDAQ Listing Rule 5635(a) and (ii) the Charter Amendment is not delivered to the API Representative within two business days after the execution and delivery of the Transaction Agreement. This termination right is no longer exercisable because TOG II delivered the Consent to the API Representative within the time required by the Transaction Agreement.
Effect of Termination
If the Transaction Agreement is terminated as described above under “Termination of the Transaction Agreement,” the Transaction Agreement will become void and of no further force and effect and there shall be no liability on the part of the parties, except that (i) certain limited representations and warranties of the API Entities, AG Companies and the TPG Parties and certain covenants with respect to confidentiality, transaction expenses and other miscellaneous provisions will remain in full force and effect and (ii) such termination shall not relieve any party from liability for any fraud or willful breach.
44
Expenses
Each party is required to pay all fees and expenses incurred by it in connection with the Transactions, including the Merger, except that (i) TOG II will bear 100% of the costs and expenses incurred in connection with the representation and warranty insurance policy to be obtained by TOG II in connection with the Transactions, the HSR filing and the other filings under applicable law; (ii) the API Entities will bear 100% of the costs and expenses incurred in connection with obtaining the consents from investment advisory clients and BDC clients, including any costs associated with any proxy solicitation; and (iii) TOG II and the API Entities will share equally in the costs and expenses incurred in connection with obtaining the director and officer liability tail insurance policy.
Amendments and Waivers
Subject to the other provisions of the Transaction Agreement, the Transaction Agreement may not be amended except by written instrument executed by TOG II and the API Representative.
Any provision of the Transaction Agreement may only be waived in writing by the party that will lose the benefit of such provision as a result of such waiver, and no waiver of any breach of or non-compliance with the Transaction Agreement shall be held to be a waiver of any other or subsequent breach or non-compliance.
No Third-Party Beneficiaries
The Transaction Agreement is not intended to confer any rights or remedies upon you or any other persons than the parties to the Transaction Agreement, their indemnitees and their respective successors and permitted assigns, except (i) the co-managing partners of the AG Companies (to the extent unconflicted, otherwise to the unconflicted AG Partner then in next highest position of authority) with respect to the right to enforce the discretionary sharing program; (ii) the current and former directors and officers of the AG Companies with respect to rights to insurance coverage after the Closing; (iii) certain law firms involved in the Transactions with respect to legal conflict waivers; (iv) the co-managing partners of the AG Companies (to the extent unconflicted, otherwise to the unconflicted AG Partner then in next highest position of authority) with respect to rights to designate certain AG Partners to TPG’s management committee; and (v) representatives and affiliates of the parties and, in certain cases, the AG Partners, with respect to recourse under the Transaction Agreement.
Specific Performance
Each party to the Transaction Agreement agreed that irreparable damage may occur in the event that any provision of the Transaction Agreement was not performed in accordance with its specific terms or was otherwise breached. Each party to the Transaction Agreement agreed that, in addition to any other remedies, each party to the Transaction Agreement is entitled to seek to enforce the terms of the Transaction Agreement by a decree of specific performance without the necessity of proving the inadequacy of money damages as a remedy and without any requirement for the securing or posting of any bond in connection with such remedy.
Governing Law
The Transaction Agreement and all claims or causes of action that may be based upon, arise out of or relate to the Transaction Agreement, or the negotiation, execution or performance of the Transaction Agreement or the transactions contemplated by the Transaction Agreement, are governed by Delaware law.
45
Related Agreements
Partner Acknowledgment and Joinder Agreement
The Transaction Agreement contemplates that, as a condition to the Closing, certain key employees of the AG Companies and 80% of the AG Partners shall have executed a Partner Acknowledgment and Joinder Agreement that is in full force and effect, and pursuant to which each such key employee or AG Partner party thereto, as applicable:
•agrees that such person’s entry into the Partner Acknowledgement and Joinder Agreement is irrevocable and consents to the form, terms and conditions of the Transaction Agreement and other transaction documents, and the consummation of the Transactions, including the Pre-Closing Reorganizations and the Merger, and agrees to be bound by, and comply with, provisions applicable to the AG Partners set forth in the Transaction Agreement, as if such person was an original signatory to the Transaction Agreement;
•agrees, effective as of the Closing, to join and become party to the A&R Investor Rights Agreement, the A&R Exchange Agreement and the A&R Tax Receivable Agreement and certain other transaction documents and constitutes and appoints the API Representative as such person’s true and lawful agent and attorney-in-fact to execute such transaction documents;
•releases, effective as of the Closing, TOG II, the API Entities, the AG Company Group Entities and certain other related persons, from any claims and liabilities arising from actions or omissions or other conduct occurring prior to and including the Closing, in each case, to the extent relating to or arising out of (i) the Transactions (including the Merger); (ii) the organizational documents of API, New API II and the AG Company Group Entities; or (iii) the releasing party’s relationship with the AG Company Group Entities, in each case, subject to certain limitations set forth in the Partner Acknowledgment and Joinder Agreement;
•agrees, effective as of the Closing, that such individual’s employment agreement or offer letter with the applicable AG Company Group Entity will be null and void following the Closing; and
•agrees prior to or simultaneously with the Closing, to pay all amounts, if any, borrowed from any of the AG Company Group Entities.
A&R Exchange Agreement
The Transaction Agreement contemplates that, at the Closing, each of New API II, Founder Holdings A and Founder Holdings G will enter into the A&R Exchange Agreement amending and restating the Exchange Agreement. A form of the A&R Exchange Agreement is attached as Annex C.
The A&R Exchange Agreement sets forth the terms upon which each Common Unit will be exchangeable (i) for cash equal to the value of one Class A Share from a substantially concurrent primary equity offering (based on the closing price per Class A Share on the day before the pricing of such primary equity offering (taking into account customary brokerage commissions or underwriting discounts actually incurred)) or (ii) at the applicable TPG affiliate’s election, for one Class A Share (or, in certain cases, for non-voting Class A Shares). Pursuant to the A&R Exchange Agreement, the number of Common Units that may be exchanged by the API Feeders into cash or Class A Shares following the Closing will be limited to an amount representing no more than 19.99% of the Class A Shares, non-voting Class A Shares and Class B Shares outstanding immediately prior to the Closing until at least 20 calendar days after TPG mails this Information Statement to its stockholders.
46
A&R Investor Rights Agreement
The Transaction Agreement contemplates that, at the Closing, each of New API II, Founder Holdings A and Founder Holdings G will enter into the A&R Investor Rights Agreement, amending and restating the Investor Rights Agreement. A form of the A&R Investor Rights Agreement is attached as Annex B.
The A&R Investor Rights Agreement sets forth certain transfer restrictions and customary registration rights with respect to the Class A Shares, Class B Shares and Common Units. In particular:
•Prior to the first anniversary of Closing, each of New API II, Founder Holdings A, Founder Holdings G and the AG Partners may not transfer or exchange any Class A Shares, Class B Shares or Common Units.
•From the first anniversary until the second anniversary of Closing, each of New API II, Founder Holdings A, Founder Holdings G and the AG Partners may not transfer or exchange a number of Class A Shares, Common Units or Class B Shares that is greater than 1/3 of the number of Class A Shares, Class B Shares or Common Units owned, directly or indirectly by the AG Partner, as of Closing.
•Between the second and third anniversary of Closing, each of New API II, Founder Holdings A, Founder Holdings G, and the AG Partners may not transfer or exchange a number of Class A Shares, Common Units or Class B Shares that is greater than 2/3 of the number of Class A Shares, Class B Shares or Common Units owned, directly or indirectly by the AG Partner, as of Closing.
A&R Tax Receivable Agreement
The Transaction Agreement contemplates that, at the Closing, each of New API II, Founder Holdings A and Founder Holdings G will enter into the A&R Tax Receivable Agreement, amending and restating the Tax Receivable Agreement. A form of the A&R Tax Receivable Agreement is attached as Annex D.
Pursuant to the A&R Tax Receivable Agreement, among other things, TPG (or its wholly owned subsidiaries) will agree to pay to the beneficiaries thereof 85% of the benefits, if any, that are realized, or deemed to be realized (calculated using certain assumptions), as a result of (i) adjustments to the tax basis of the assets of TOG II and its consolidated subsidiaries as a result of certain exchanges of Common Units and (ii) certain other tax benefits.
47
FINANCIAL INFORMATION OF TPG
Certain financial information with respect to the Company required under Regulation 14C promulgated under the Exchange Act, including the Company’s (i) financial statements and supplementary financial data; (ii) management’s discussion and analysis of financial conditions and results of operations; (iii) quantitative and qualitative disclosures about market risk; and (iv) changes in and disagreements with accountants on accounting and financial disclosure, is contained in our Annual Report on Form 10-K for the year ended December 31, 2022, filed with the SEC on February 24, 2022, and in our Quarterly Reports on Form 10-Q for the quarterly periods ended March 31, 2023 and June 30, 2023, filed with the SEC on May 15, 2023 and August 8, 2023, each of which is incorporated by reference herein.
FINANCIAL INFORMATION OF ANGELO GORDON
Certain financial information with respect to Angelo Gordon required under Regulation 14C promulgated under the Exchange Act is set forth in Annex G of this Information Statement and is incorporated by reference herein.
48
ANGELO GORDON INFORMATION
Description of the Business
Angelo Gordon is a leading alternative investment firm with approximately $74.3 billion of AUM. Angelo Gordon was founded in New York in 1988 by John Angelo and Michael Gordon and has invested across a broad range of credit and real estate strategies and markets for nearly 35 years. Combining deep industry sector and market expertise with a collaborative, knowledge-sharing culture, Angelo Gordon seeks out investment opportunities that allow it to exploit inefficiencies in global credit and real estate markets. Angelo Gordon’s investment approach prioritizes disciplined portfolio construction backed by rigorous research and a strong focus on capital preservation. Angelo Gordon has what it believes to be a large and diversified base of investors comprised of public pension plans, corporate pension plans, government funds, financial institutions, endowments, foundations, asset management firms, insurance companies, single and multi-family offices and other institutional investors, as well as registered investment advisors and high net worth individuals, across the United States and internationally. Angelo Gordon has over 700 employees across the United States, Europe and Asia.
AG Credit
Angelo Gordon’s alternative credit products (collectively referred to as “AG Credit”) are: (i) AG Credit Solutions; (ii) AG Structured Credit & Specialty Finance; (iii) AG Middle Market Direct Lending; (iv) AG Collateralized Loan Obligations (“CLOs”); and (v) AG Multi-Strategy. AG Credit’s capabilities span private and tradeable credit across corporate and asset-backed markets. As of June 30, 2023, the credit products had a combined AUM and fee earning assets under management (“FAUM”) of $56.6 billion and $37.6 billion, respectively. In the last 12 months, AG Credit raised $4.2 billion, invested $9.3 billion and generated $3.2 billion in realizations. Over that same period, FAUM increased by 13%.
| AG Credit Solutions | AG Structured Credit & Specialty Finance | AG Middle Market Direct Lending | AG CLOs | AG Multi-Strategy | ||||||||||
Opportunistic corporate credit and special situations | Securitized and other asset-based credit | Middle-market senior secured lending | CLOs in senior secured floating rate loans | Multi-strategy public and private credit | ||||||||||
$12.5 billion AUM | $14.5 billion AUM | $19.4 billion AUM | $8.4 billion AUM | $1.8 billion AUM | ||||||||||
__________
AUM as of June 30, 2023
Product: AG Credit Solutions
AG Credit Solutions invests in stressed, distressed and special situation corporate credit opportunities, primarily in North America and Europe, and can dynamically pivot between the public and private markets. Angelo Gordon employs what it believes to be a differentiated, solutions-based approach that is capable of being executed in any market environment. AG Credit Solutions seeks to align with companies, financial sponsors and business owners and to use its structuring skill and capital base to create bespoke, bilaterally-negotiated financing transactions that help resolve complex and idiosyncratic financial challenges. AG Credit Solutions funds may also opportunistically invest in securities acquired at what the investment team believes are discounted prices relative to their intrinsic value and offer the potential for contractual income and/or price appreciation. Credit Solutions is the flagship series of closed-end draw-down fund vehicles for public and private investments, while Corporate Credit Opportunities is an evergreen, open-ended fund vehicle for opportunistic public/liquid corporate credit investments. In periods of market volatility and stress, Credit Solutions Dislocation funds have been formed to invest tactically in public debt securities whose prices have dislocated from long-term fundamentals. Essential Housing is a proprietary business platform, capitalized through a series of closed-end draw-down funds, that provides financing to homebuilders for short-duration, close-to-production land inventory. In the last 12 months, AG Credit Solutions raised $1.5 billion, invested $2.5 billion and generated $1.2 billion in realizations. AG Credit Solutions has 23 investment professionals across New York, London and Los Angeles.
49
Product: AG Structured Credit & Specialty Finance
AG Structured Credit & Specialty Finance focuses on major non-corporate credit sectors, including consumer, residential and commercial real estate, and specialty lending markets, and also has substantial CLO debt and equity investing capabilities. AG Structured Credit & Specialty Finance funds include Angelo Gordon’s Mortgage Value Partners Fund (“MVP Fund”), a liquid securities oriented, open-ended hedge fund; and Asset Based Credit Fund (“ABC Fund”) series, a private credit-oriented closed-end draw-down fund; as well as separately managed accounts (“SMAs”) typically encompassing a mix of liquid securities and private credit strategies. AG Structured Credit & Specialty Finance’s funds and SMAs generally focus on investments within North America, with some exposure to Western Europe. AG Structured Credit & Specialty Finance also includes AG Mortgage Investment Trust, Inc. (NYSE: MITT) (“MITT”), an externally-managed, publicly traded residential mortgage real estate investment trust focused on investing in a diversified risk-adjusted portfolio of U.S. residential mortgage-related assets in the U.S. mortgage market. In the last 12 months, AG Structured Credit & Specialty Finance raised $0.8 billion, invested $1.9 billion and generated $0.6 billion in realizations. AG Structured Credit & Specialty Finance has 31 investment professionals based in New York.
Product: AG Middle Market Direct Lending
AG Middle Market Direct Lending, Twin Brook Capital Partners, focuses on sourcing, underwriting and actively managing a diversified portfolio of middle market, floating rate, senior secured loans, including revolvers, first lien debt and, opportunistically, second lien debt. As a direct lender to private equity sponsored middle market companies, the strategy focuses on opportunities where the firm can receive a pricing premium relative to broadly syndicated loans and relies on ongoing borrower support from sponsors. AG Middle Market Direct Lending includes the MMDL closed-end fund series, as well as a public, non-traded BDC, AG Twin Brook Capital Income Fund (“TCAP”). In the last 12 months, AG Middle Market Direct Lending raised $1.8 billion, invested $4.3 billion and generated $1.3 billion in realizations. AG Middle Market Direct Lending has 74 investment professionals based in Chicago.
Product: AG CLOs
AG CLOs invests predominantly in non-investment grade senior secured bank loans. Angelo Gordon issued its first CLO through Northwoods in 1998. Today AG Northwoods issues U.S. CLOs investing predominantly in U.S. dollar-denominated loans, and Euro CLOs investing predominantly in Euro-denominated loans and secured bonds. AG CLOs include performing credit bespoke vehicles, CLO funds and direct investment in the tranches of Northwoods CLOs. As of June 30, 2023, AG CLOs had an AUM and FAUM of $8.4 billion and $8.1 billion, respectively. AG CLOs have 15 investment professionals and traders across New York and London.
Product: AG Multi-Strategy
AG Multi-Strategy invests across the breadth of AG Credit, with a geographic focus in the United States and Western Europe. AG Multi-Strategy offers actively managed co-mingled funds, including Angelo Gordon’s Super Fund (“Super Fund”) founded in 1993, in addition to bespoke vehicles and various multi-strategy credit funds of one. These funds invest in public and private investment opportunities sourced from across AG Credit, as well as arbitrage strategies, including convertible arbitrage and merger arbitrage. AG Multi-Strategy funds invest in, among other products, corporate loans and bonds; residential, consumer and asset-based loans and securities; hybrid instruments; and derivative securities, including currency and interest rate hedges. As of June 30, 2023, AG Multi-Strategy had an AUM and FAUM of $1.8 billion and $1.5 billion, respectively. AG Multi-Strategy has dedicated co-portfolio managers and draws on the subject matter expertise of more than 140 investment professionals and traders across the United States and Europe.
AG Real Estate
Angelo Gordon’s real estate products (collectively referred to as “AG Real Estate”) are (i) AG U.S. Real Estate; (ii) AG Asia Real Estate; (iii) AG Europe Real Estate; and (iv) AG Net Lease. AG Real Estate products in the United States, Asia and Europe primarily focus on the acquisition of equity interests of underperforming and undervalued assets in the United States, Asia and Europe, where the firm employs its opportunistic and value-add strategies to improve performance. AG Net Lease primarily invests in single tenant commercial real estate acquired in simultaneous sale-leaseback transactions. As of June 30, 2023, AG Real Estate had an AUM and FAUM of $17.7 billion and $13.1 billion, respectively. In the last 12 months, AG Real Estate raised $3.2 billion, invested $2.9 billion and generated $2.6 billion in realizations. Over that same period, FAUM increased by 13%.
50
| AG U.S. Real Estate | AG Asia Real Estate | AG Europe Real Estate | AG Net Lease | ||||||||
| Diversified portfolio along the value-add spectrum | Opportunistic investments in Asia | Diversified portfolio along the value-add spectrum | Diversified bond-like portfolio of sale-leaseback transactions | ||||||||
$7.2 billion AUM | $4.9 billion AUM | $3.7 billion AUM | $1.9 billion AUM | ||||||||
__________
AUM as of June 30, 2023
AG U.S. Real Estate
AG U.S. Real Estate manages assets across various product sectors and has been active in many of the major U.S. real estate markets. AG U.S. Real Estate focuses on purchasing what it believes to be underperforming and undervalued real estate assets, where it then executes an active asset management strategy to reposition and stabilize the properties. Investing through the U.S. Realty and Core Plus Realty fund series, AG U.S. Real Estate is diversified across property sectors, with a thematic portfolio construction focused on rental residential, industrial, self-storage, life science, student housing and medical office, among other sectors. In the last 12 months, AG U.S. Real Estate raised $1.4 billion, invested $1.3 billion and generated $1.5 billion of realizations. AG U.S. Real Estate has 29 real estate investment professionals in New York, Los Angeles and Bethesda focused by region and working with a network of over 90 local operating partners.
AG Asia Real Estate
AG Asia Real Estate manages assets across Asia, with investments primarily in Japan, South Korea, Hong Kong, China and Singapore. AG Asia Real Estate focuses on capitalizing on opportunistic investments, primarily created through lack of real estate expertise, illiquidity or distress in many Asian markets. Investing through the Asia Realty fund series, the AG Asia Real Estate portfolio includes office, industrial, residential, hotel, retail, life science and other asset types. In the last 12 months, AG Asia Real Estate raised $1.1 billion, invested $0.6 billion and generated $0.3 billion of realizations. AG Asia Real Estate has 20 real estate investment professionals in Hong Kong, Seoul and Tokyo working with a network of over 55 local operating partners.
AG Europe Real Estate
AG Europe Real Estate manages assets across Europe, with investments primarily located in major cities in Western Europe and the United Kingdom. AG Europe Real Estate focuses on sub-performing and distressed real estate assets. Business plans may range from modest lease-up and operational improvement to more significant value-add strategies, which may require complete capital restructuring or asset repositioning to stabilize. Investing through the Europe Realty fund series, the AG Europe Real Estate portfolio includes industrial, residential, office, hotel, retail, student housing, self-storage and other asset types. In the last 12 months, AG Europe Real Estate raised $0.7 billion, invested $0.6 billion and generated $0.4 billion of realizations. AG Europe Real Estate has 20 real estate investment professionals in London, Milan, Amsterdam and Frankfurt working with a network of 50 local operating partners.
AG Net Lease
AG Net Lease focuses on single tenant commercial real estate, generally leased to non-investment grade tenants, largely acquired in simultaneous sale-leaseback transactions. AG Net Lease primarily purchases existing facilities that are integral to the ongoing operations of the tenants, such as a company’s manufacturing plant or distribution centers. As of June 30, 2023, AG Net Lease had an AUM and FAUM of $1.8 billion and $1.5 billion, respectively. AG Net Lease funds include the Net Lease Realty series, which manage assets primarily located within the United States, with certain assets in the United Kingdom, Western Europe, Canada and Mexico. AG Net Lease has 13 investment professionals across New York and London.
51
Market Price of and Dividends on Angelo Gordon Equity and Related Stockholder Matters
There is no established trading market for API partnership interests. As of September 30, 2023, 104 partners held a partnership interest in API.
API management exercises sole discretion with respect to making distributions to its partners. API made distributions of $103.9 million during the six months ended June 30, 2023 and $187.4 million and $30.5 million for the years ended December 31, 2022 and 2021, respectively.
52
Management’s Discussion and Analysis of Financial Conditions and Results of Operations of Angelo Gordon
The following discussion and analysis of API’s financial condition and results of operations should be read in conjunction with API’s audited and unaudited consolidated financial statements and related notes, which are attached hereto as Annex G. The historical consolidated financial data discussed below reflect API’s historical results of operations and financial position and do not give effect to pro forma adjustments.
This discussion contains forward-looking statements that are based on API’s current expectations, estimates and projections about its business and operations. API’s actual results may differ materially from those currently anticipated. API has no obligation to update any of these forward-looking statements.
Trends Affecting Angelo Gordon’s Business
Angelo Gordon’s business is materially affected by global and regional economic conditions, and the financial and real estate environment in the United States, Europe, Asia and, to a lesser extent, the rest of the world. Adverse circumstances can materially impact Angelo Gordon’s ability to raise capital from investors, the valuations of its investments and its ability to source or dispose of investments on favorable terms.
Global market performance generally improved during the first half of 2023, with the S&P 500 increasing 16.9% and the MSCI All Country World Ex-US Index increasing 11.8%. For the six months ended June 30, 2023, the Euro rose 1.9%, the British pound rose 4.8%, the Japanese yen fell 9.0%, the Chinese renminbi fell 4.3% and the Hong Kong dollar fell 0.4%, respectively, relative to the U.S. dollar.
In the United States, the effective federal funds rate was 5.08% as of June 30, 2023, up from 4.83% as of March 31, 2023. The Federal Reserve elected to raise the federal target rate by only 0.25% as inflation eased in the three months ended June 30, 2023; however, inflation continued to remain elevated relative to historical levels and the Federal Reserve’s long-term target of 2%. The U.S. Consumer Price Index (“CPI”) rose 4.0% in May 2023 relative to the year prior, a rate less than half of the recent peak of 9.1% in June 2022. Core CPI, which excludes food and energy, rose 5.3% year-over-year in May 2023. This moderate growth in consumer prices occurred despite continued job growth and low unemployment. The U.S. economy added over 700,000 payrolls during the three months ended June 30, 2023, and the unemployment rate rose slightly to 3.6% as of June 2023, up from 3.5% as of the end of the prior quarter.
Outside of the United States, the European Central Bank’s short-term benchmark interest rate was 4.0% as of June 30, 2023, up from 3.5% as of March 31, 2023, and Euro-area inflation was 5.5% in June 2023, down from 6.9% in March 2023. The Japanese interest rate market remained stable, with Japan’s short-term base rate remaining below 10 basis points as of June 30, 2023. The Bank of Korea held the base rate steady at 3.5% at the close of the second quarter, unchanged since January of this year. The People’s Bank of China decreased the one-year loan prime rate by 10 basis points in June 2023. In Japan, the real GDP grew 6.0% quarter-over-quarter on an annualized basis as of June 30, 2023, primarily driven by strong private housing demand and net export of good and services. South Korea’s GDP continued its economic growth in the second quarter, at a pace of 0.6% quarter-over-quarter, showing further signs of recovery following the previous quarter; however, this trend was mainly driven by positive net exports as a result of a decrease in imports, while consumption and investments fell overall. China’s economy gained some momentum and grew 6.3% year-over-year in the second quarter of 2023, following a 4.5% increase in the previous quarter, despite the impact of geopolitical tensions and overseas interest rate hikes.
Focusing on credit markets, both U.S. and European high yield markets performed positively in the first half of 2023. According to J.P. Morgan data, the U.S. high yield market saw gains of 5.8% in the United States and the European market saw gains of 5.1% year-to-date through June 30, 2023. Notably, lower-rated CCCs significantly outperformed higher-rated BBs over this period, generating returns of 10.2% and 4.6%, respectively. U.S. high yield bond spreads-to-worst compressed 76 basis points in the first six months of 2023, ending June 2023 at 434 basis points. In Europe, high yield spreads also tightened to close the quarter at 494 basis points. The high yield default rate rose to 2.7% in the United States, which was a two-year high, and 1.4% in Europe. Additionally, the J.P. Morgan U.S. Leveraged Loan Index posted a 3.2% return and the J.P. Morgan European Leveraged Loan Index posted a 3.3% quarterly return. The S&P/LSTA U.S. Leveraged Loan 100 B/BB Rating increased 92 basis points in the first half of 2023.
53
In commercial real estate, the Green Street Commercial Property Price Index ended June 2023 down 15.9% from its March 2022 peak. Commercial property transaction volume in the United States and Europe fell significantly year-over-year, driven primarily by elevated borrowing rates and reductions in liquidity and credit availability. Major Asian markets faced similar challenges, with commercial property transaction volume in Hong Kong falling 65.4% quarter-over-quarter in the first half of 2023, marking the weakest period since the second half of 2008. In China, transaction volume fell in the first half of 2023, down 17.0% year-over-year, largely due to prolonged overseas interest rate hikes and ongoing geopolitical tension. However, transaction volume in Japan was up 3.0% during the same period, slightly above the average first half volume recorded during the past five years.
U.S. residential real estate improved slightly during the quarter, with national U.S. home prices rising approximately 4.7% year-to-date through June 2023, slightly below the peak recorded in June 2022 according to the S&P/Case-Shiller U.S. National Home Price Index, in part due to constrained housing supply.
Reorganization
On January 1, 2021, AG OpCo, AG CarryCo, API and API GP completed the organizational and legal restructuring of the AG Companies (the “Reorganization”). Prior to the Reorganization, (i) API was AG Funds GP, L.P. (“AG Funds GP”) and managed by JM Funds LLC, its then general partner; (ii) all of the direct and indirect ownership interests of AG OpCo and AG CarryCo were held by AG Funds GP, AG Employee Holdings, LLC (“AG Employee Holdings”), a legal entity owned by certain senior employee partners of the AG Companies, and direct founder affiliated limited partners; and (iii) the economic interests of AG CarryCo were held by AG OpCo.
Basis of Accounting
Angelo Gordon’s consolidated financial statements present the results of API and the consolidated accounts of AG OpCo, AG Funds and subsidiaries for which API has a controlling interest. Prior to the Reorganization, API’s financial statements reflected AG Funds GP and AG OpCo as common control entities.
Angelo Gordon’s consolidated financial statements include API’s wholly or majority owned subsidiaries, including certain carry plan partnerships, consolidated investment fund entities (“Consolidated Investment Funds”) that are either (i) variable interest entities (“VIEs”) for which API is considered the primary beneficiary or (ii) voting interest entities (“VOEs”) for which API holds a controlling financial interest as defined by U.S. GAAP, and any other subsidiaries that meet the definition of a VIE. As a result, API’s consolidated statements of financial condition reflect the assets and liabilities of the consolidated entities on a gross basis.
Consolidated Investment Funds include certain CLO entities sponsored by API (“CLO Funds”), for which AG OpCo or a subsidiary thereof serves as collateral manager, and a majority-owned affiliate (“MOA”). The majority ownership interests in the CLO Funds and MOA are reflected as non-controlling interests in the accompanying consolidated statements of financial condition. The management fees and investment income earned from the Consolidated Investment Funds are eliminated in consolidation; however, API’s allocated share of the net income (loss) from these funds increases or decreases by the amount of these eliminated fees. Accordingly, the consolidation of these subsidiaries does not affect API’s net assets. As a result of a sale of certain of CLO positions as of June 30, 2023, API no longer holds economic interests in the Consolidated Investment Funds that would be significant. Accordingly, API deconsolidated those entities as of June 30, 2023.
54
Key Financial Measures
API’s key financial and operating measures are discussed below.
Revenues
Fees and Other. Fees and other consists primarily of (i) management fees for providing investment advisory services to Angelo Gordon investment funds, SMAs and clients, and catch-up fees, which are fees paid in any given period that relate to a prior period, usually as the result of a new limited partner coming into a fund in a subsequent close; (ii) incentive fee income upon exceeding certain benchmarks and targets and (iii) expense reimbursements from Angelo Gordon investment funds.
Capital Allocation-Based Income. Capital allocation-based income is comprised of (i) incentive allocation investment income and (ii) general partner (“GP”) investment income (loss).
Incentive allocation investment income, or performance allocations, consist principally of performance-based capital allocations that entitle Angelo Gordon to an allocation of investment income or loss from investment funds, irrespective of whether such amounts have been realized. Incentive allocation investment income is recognized upon appreciation of valuations of Angelo Gordon’s investment fund’s investments above certain return hurdles and is based on the amounts that would be earned at each period end as if the investment funds were liquidated at their then reported net asset values (“NAV”). Incentive allocation investment loss is recognized upon negative performance that would cause the amount due to Angelo Gordon to be less than the amount previously recognized.
GP investment income (loss) is earnings recognized on Angelo Gordon’s various general partner and limited partner interests in the Angelo Gordon investment funds.
Angelo Gordon accounts for investment balances in the investment funds, including incentive allocation investment income, under the equity method of accounting because Angelo Gordon is presumed to have significant influence as the general partner or managing member; however, Angelo Gordon does not have control as defined by Accounting Standards Codification (“ASC”) Topic 810, Consolidation. Angelo Gordon accounts for its general partner interests in capital allocation-based arrangements as financial instruments under ASC Topic 323, Investments – Equity Method and Joint Ventures as the general partner has significant governance rights in the Angelo Gordon investment funds in which it invests which demonstrates significant influence. Accordingly, incentive allocation investment income are not deemed to be within the scope of ASC Topic 606, Revenue from Contracts with Customers (“ASC 606”).
Expenses
Compensation and Benefits. Compensation and benefits expenses include (i) cash-based compensation, benefits and other, (ii) equity-based compensation and (iii) performance allocation compensation. Bonuses are accrued over the service period to which they relate. Equity-based compensation arrangements, primarily awards of limited partner interests granted to employees, are recognized as compensation expense over the requisite service period for the entire award. The amount of compensation expense that is recognized is at least equal to the grant-date value of the vested portion of the award. Certain equity-based compensation arrangements include both a service and performance obligation. In such cases, Angelo Gordon measures the requisite compensation expense when the performance obligation is probable of being satisfied.
Certain Angelo Gordon employees have been granted profit sharing arrangements, or performance allocation compensation, entitling them to share in the incentive income earned from the Angelo Gordon investment funds in which they are involved. When API records incentive income as either capital allocation-based income or fee revenues, a corresponding performance allocation compensation expense is accrued, if applicable. These amounts are generally payable when incentive income is distributed from the relevant fund.
General, Administrative and Other. General, administrative and other expenses include costs primarily related to information technology costs, marketing activities, occupancy expenses, professional services, travel and entertainment, employee hiring expenses and other general operating items.
Depreciation and Amortization. Depreciation and amortization of leasehold improvements, capitalized software and equipment are expensed on a straight-line basis over the useful life of the asset.
55
Interest Expense. Interest expense includes interest paid and accrued on the AG Credit Facility (as defined herein), repurchase agreements and the amortization of deferred financing costs in relation to the AG Credit Facility.
Expenses of Consolidated Investment Funds. Expenses of Consolidated Investment Funds consist of (i) interest expense and (ii) general, administrative and other expenses related primarily to advisory fees, research expenses, professional fees and other operating costs of the Consolidated Investment Funds.
Investment Income (Loss)
Net Gains (Losses) from Investment Activities and Other. Net gains (losses) from investment activities and other are primarily realized and unrealized gains or losses on certain trading securities and investments in other partnerships held by Angelo Gordon and foreign currency related gains and losses. Fluctuations in net gains (losses) from investment activities are primarily driven by changes in the fair value of the firm’s investment portfolio and the gains (losses) on investments disposed of during the period. The fair value of, as well as the ability to recognize gains (losses) from, Angelo Gordon’s investments is significantly impacted by the global financial markets. Upon the disposition of an investment, previously recognized unrealized gains (losses) are reversed, and an offsetting realized gain (loss) is recognized in the period in which the investment is sold. Foreign currency gains and losses include remeasurement gains and losses along with foreign currency gains and losses resulting from transactions in currencies other than the U.S. dollar, the functional currency of API.
Interest, Dividends and Other. Interest income is recognized on an accrual basis to the extent that such amounts are expected to be collected using the effective interest method. Dividends and other investment income are recorded when the right to receive payment is established.
Net Gains (Losses) from Investment Activities and Other of Consolidated Investment Funds. Net gains (losses) from investment activities of Angelo Gordon’s Consolidated Investment Funds include (i) realized gains (losses) from the sale of equity, securities sold and not yet purchased, debt and derivative instruments and (ii) unrealized gains (losses) from changes in the fair value of such instruments.
Interest, Dividends and Other of Consolidated Investment Funds. Interest income is recognized on an accrual basis to the extent that such amounts are expected to be collected using the effective interest method. Dividends and other investment income are recorded when the right to receive payment is established.
Income Tax Expense
Income tax expense consists of taxes paid or payable by Angelo Gordon’s operating subsidiaries. Angelo Gordon has historically been treated as a partnership for U.S. federal and state income tax purposes. As such, income generated by Angelo Gordon flows through to its partners and is generally not subject to U.S. federal or state income tax at the API level. Certain consolidated subsidiaries are subject to taxation in the United States (federal, state and local) and foreign jurisdictions as a result of their entity classification utilized for tax reporting purposes.
Non-Controlling Interests
As of June 30, 2023, non-controlling interests primarily represent certain third-party interests in consolidated subsidiaries of API, including the founder affiliate investor of AG OpCo. As of December 31, 2022, non-controlling interests primarily represent the ownership interests in Consolidated Investment Funds held by limited partners or their equivalents and the aforementioned third-party interests in consolidated subsidiaries. With respect to the year ended December 31, 2020 and prior to the Reorganization, the interests of AG Employee Holdings and the non-controlling founder interests in AG OpCo were reflected as non-controlling interests. The aggregate of the income or loss and corresponding equity that is not owned by API is included in non-controlling interests in the consolidated financial statements. Allocation of income to non-controlling interest holders is based on the respective entities’ governing documents.
56
Key Components of Angelo Gordon’s Results of Operations
Results of Operations
The following table provides information regarding API’s consolidated results of operations for the periods presented:
| Six Months Ended June 30, | Year Ended December 31, | ||||||||||||||||||||||||||||
| 2023 | 2022 | 2022 | 2021 | 2020 | |||||||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||||||||
| Revenues: | |||||||||||||||||||||||||||||
| Fees and other | $ | 285,362 | $ | 242,893 | $ | 516,910 | $ | 452,279 | $ | 434,339 | |||||||||||||||||||
| Capital allocation-based income | 110,606 | 93,756 | 76,158 | 811,781 | 24,434 | ||||||||||||||||||||||||
| Total revenues | 395,968 | 336,649 | 593,068 | 1,264,060 | 458,773 | ||||||||||||||||||||||||
| Expenses: | |||||||||||||||||||||||||||||
| Compensation and benefits: | |||||||||||||||||||||||||||||
| Cash-based compensation, benefits and other | 220,513 | 185,677 | 393,638 | 384,677 | 344,846 | ||||||||||||||||||||||||
| Equity-based compensation | 4,755 | 4,076 | 10,156 | 33,865 | 10,637 | ||||||||||||||||||||||||
| Performance allocation compensation | 40,062 | 53,405 | 39,561 | 338,202 | 4,430 | ||||||||||||||||||||||||
| Total compensation and benefits | 265,330 | 243,158 | 443,355 | 756,744 | 359,913 | ||||||||||||||||||||||||
| General, administrative and other | 103,178 | 80,404 | 167,114 | 146,745 | 134,593 | ||||||||||||||||||||||||
| Depreciation and amortization | 4,933 | 5,553 | 10,737 | 12,621 | 12,198 | ||||||||||||||||||||||||
| Interest expense | 3,294 | 1,195 | 3,010 | 1,771 | 2,294 | ||||||||||||||||||||||||
| Expenses of Consolidated Investment Funds: | |||||||||||||||||||||||||||||
| Interest expense | 50,450 | 21,129 | 58,611 | 38,593 | 45,432 | ||||||||||||||||||||||||
| General, administrative and other | 956 | 1,042 | 2,234 | 3,258 | 4,156 | ||||||||||||||||||||||||
| Total expenses | 428,141 | 352,481 | 685,061 | 959,732 | 558,586 | ||||||||||||||||||||||||
| Investment income: | |||||||||||||||||||||||||||||
| Net gain (loss) from investment activities and other | 206 | (2,781) | (1,369) | 1,011 | 650 | ||||||||||||||||||||||||
| Interest, dividends and other | 9,975 | 3,019 | 10,121 | 4,140 | 5,246 | ||||||||||||||||||||||||
| Investment income of Consolidated Investment Funds: | |||||||||||||||||||||||||||||
| Net gain (loss) from investment activities and other | (12,148) | (12,700) | (19,622) | (7,869) | (24,705) | ||||||||||||||||||||||||
| Interest, dividends and other | 64,855 | 33,685 | 86,832 | 65,529 | 78,981 | ||||||||||||||||||||||||
| Total investment income | 62,888 | 21,223 | 75,962 | 62,811 | 60,172 | ||||||||||||||||||||||||
| Net income (loss) before income taxes | 30,715 | 5,391 | (16,031) | 367,139 | (39,641) | ||||||||||||||||||||||||
| Income tax expense | 2,814 | 660 | 1,363 | 4,839 | 3,156 | ||||||||||||||||||||||||
| Net income (loss) | 27,901 | 4,731 | (17,394) | 362,300 | (42,797) | ||||||||||||||||||||||||
| Other comprehensive income (loss), net: | |||||||||||||||||||||||||||||
| Foreign currency translation adjustments, net including non-controlling interests | 348 | (206) | (125) | (299) | (152) | ||||||||||||||||||||||||
| Comprehensive income (loss) including non-controlling interests | 28,249 | 4,525 | (17,519) | 362,001 | (42,949) | ||||||||||||||||||||||||
| Comprehensive income (loss) by Partner: | |||||||||||||||||||||||||||||
| Comprehensive income (loss) to Partners | 28,938 | 8,120 | (17,512) | 354,998 | (42,195) | ||||||||||||||||||||||||
| Comprehensive income (loss) allocable to non-controlling interests | (689) | (3,595) | (7) | 7,003 | (754) | ||||||||||||||||||||||||
| Comprehensive income (loss) | $ | 28,249 | $ | 4,525 | $ | (17,519) | $ | 362,001 | $ | (42,949) | |||||||||||||||||||
57
Six Months Ended June 30, 2023 Compared to Six Months Ended June 30, 2022
Revenues
Revenues consisted of the following for the six months ended June 30, 2023 and 2022:
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Management fees | $ | 244,035 | $ | 202,578 | $ | 41,457 | 20 | % | |||||||||||||||
| Incentive fee income | 5,411 | 989 | 4,422 | 447 | % | ||||||||||||||||||
| Expense reimbursements and other | 35,916 | 39,326 | (3,410) | (9) | % | ||||||||||||||||||
| Total fees and other | 285,362 | 242,893 | 42,469 | 17 | % | ||||||||||||||||||
| Incentive allocation investment income | 106,221 | 93,872 | 12,349 | 13 | % | ||||||||||||||||||
| GP investment income (loss) | 4,385 | (116) | 4,501 | NM | |||||||||||||||||||
| Total capital allocation-based income | 110,606 | 93,756 | 16,850 | 18 | % | ||||||||||||||||||
| Total revenues | $ | 395,968 | $ | 336,649 | $ | 59,319 | 18 | % | |||||||||||||||
Fees and other revenues increased by $42.5 million, or 17%, during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change resulted from a $41.5 million increase in management fees and a $4.4 million increase in incentive fee income, which was partially offset by a $3.4 million decrease in expense reimbursements and other.
Management Fees. Management fees increased by $41.5 million, or 20%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by an increase in management fees from Asia Realty V of $10.9 million, which was activated during the second quarter of 2022, and Realty Value XI of $10.3 million, which was activated during the first quarter of 2022. Management fees earned from Credit Solutions II and MMDL IV increased $9.0 million and $4.2 million, respectively, primarily due to higher fee basis attributable to an increase in capital invested. These increases were partially offset by a decrease in management fees from Energy II of $3.4 million and from Asia Realty IV of $3.2 million due to continued harvesting of those funds’ respective portfolios, decreasing their FAUM.
Management fees of $2.1 million during the six months ended June 30, 2023 were considered catch-up fees as a result of additional capital commitments from limited partners. Catch-up fees primarily consisted of $1.9 million from Asia Realty V, which had its initial close in 2022.
Incentive Fee Income. Incentive fee income increased by $4.4 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily due to increased capital appreciation and income incentive fees earned of $3.6 million from certain Twin Brook BDC funds.
Expense Reimbursements and Other. Expense reimbursements and other decreased by $3.4 million, or 9%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by a decrease in expense reimbursements of $4.1 million, which was largely driven by a decrease in reimbursable costs from Angelo Gordon’s Netherlands-based European investment business of $5.0 million, partially offset by a $0.7 million increase in reimbursable expenses following the launch of TCAP in 2023. Other fee income increased $0.7 million, primarily due to new administrative agent loan fees being earned from certain new direct lending funds.
Incentive allocation investment income. Incentive allocation investment income increased $12.3 million, or 13%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by an increase of incentive allocation investment income of $34.5 million from Realty IX, $31.8 million from Credit Solutions I, $30.5 million from Core Plus Realty IV, $23.2 million from MVP Fund and $9.0 million from Credit Solutions II Dislocation A, primarily due to higher yields during the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This increase was partially offset by a decrease of $86.8 million in incentive allocation investment income from Realty Value X and $34.0 million from Asia Realty IV driven by unrealized losses.
58
The table below highlights incentive allocation investment income (loss) for the six months ended June 30, 2023 and 2022:
| Six Months Ended June 30, | |||||||||||||||||||||||
| 2023 | 2022 | Change | % | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
AG Credit | |||||||||||||||||||||||
| MVP Fund | $ | 23,221 | $ | (16) | $ | 23,237 | NM | ||||||||||||||||
| MMDL IV | 19,707 | 16,389 | 3,318 | 20 | % | ||||||||||||||||||
| Credit Solutions I | 17,761 | (14,052) | 31,813 | 226 | % | ||||||||||||||||||
| MMDL III | 9,806 | 19,324 | (9,518) | (49) | % | ||||||||||||||||||
| Credit Solutions II Dislocation A | 8,975 | — | 8,975 | 100 | % | ||||||||||||||||||
| MMDL II | 5,966 | 9,549 | (3,583) | (38) | % | ||||||||||||||||||
| MMDL IV Annex | 5,507 | 425 | 5,082 | NM | |||||||||||||||||||
| Commercial Debt Opportunities II | (5,578) | 1,467 | (7,045) | (480) | % | ||||||||||||||||||
| Commercial Debt Opportunities III | (5,735) | 1,383 | (7,118) | (515) | % | ||||||||||||||||||
| Other | 28,027 | 15,343 | 12,684 | 83 | % | ||||||||||||||||||
| AG Credit | $ | 107,657 | $ | 49,812 | $ | 57,845 | 116 | % | |||||||||||||||
AG Real Estate | |||||||||||||||||||||||
| Net Lease Realty III | $ | 13,545 | $ | 8,175 | $ | 5,370 | 66 | % | |||||||||||||||
| Europe Realty III | 6,918 | 7,667 | (749) | (10) | % | ||||||||||||||||||
| Realty IX | — | (34,489) | 34,489 | 100 | % | ||||||||||||||||||
| Core Plus Realty IV | (38) | (30,560) | 30,522 | 100 | % | ||||||||||||||||||
| Asia Realty IV | (225) | 33,767 | (33,992) | (101) | % | ||||||||||||||||||
| Realty VIII | (1,226) | (8,909) | 7,683 | 86 | % | ||||||||||||||||||
| Asia Realty III | (1,836) | (8,954) | 7,118 | 79 | % | ||||||||||||||||||
| Europe Realty II | (6,751) | 5,251 | (12,002) | (229) | % | ||||||||||||||||||
| Realty Value X | (11,928) | 74,913 | (86,841) | (116) | % | ||||||||||||||||||
| Other | 105 | (2,801) | 2,906 | 104 | % | ||||||||||||||||||
| AG Real Estate | $ | (1,436) | $ | 44,060 | $ | (45,496) | (103) | % | |||||||||||||||
| Total Incentive Allocation Investment Income | $ | 106,221 | $ | 93,872 | $ | 12,349 | 13 | % | |||||||||||||||
GP Investment Income. GP investment income increased by $4.5 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by an increase of GP investment income of $2.5 million from Credit Solutions I, $2.2 million from MVP Fund, $1.4 million from an AG Multi-Strategy SMA, $1.4 million from Super Fund and $1.7 million in earnings from other credit strategy funds. This increase was partially offset by a $4.6 million decrease in earnings across AG Real Estate for the period.
Expenses
Cash-Based Compensation, Benefits and Other. Cash-based compensation, benefits and other expense increased by $34.8 million, or 19%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by an increase in salaries and benefits of $7.5 million and bonuses of $27.3 million due to higher headcount during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.
Equity-based Compensation. Equity-based compensation expense increased by $0.7 million, or 17%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was attributable to an increase in compensation expense for MITT of $1.7 million driven from MITT’s increasing share price, partially offset by lower compensation expense of $1.0 million from vesting of certain equity plans in late 2022.
59
Performance Allocation Compensation. Performance allocation compensation decreased by $13.3 million, or 25%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was attributable to a decrease in incentive allocation investment income that drives compensation attributable to Angelo Gordon’s partners and professionals.
General, Administrative and Other. General and administrative expenses increased by $22.8 million, or 28%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by a $17.0 million increase in professional fees related to the Transactions.
Depreciation and Amortization. Depreciation and amortization decreased by $0.6 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.
Interest Expense. Interest expense increased by $2.1 million, or 176%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily due to higher effective interest rates on outstanding borrowings under the AG Credit Facility and repurchase agreements during the six months ended June 30, 2023.
Interest Expense of Consolidated Investment Funds. Interest expense of Consolidated Investment Funds increased by $29.3 million, or 139%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by continued increases in effective interest rates.
General, Administrative and Other Expense of Consolidated Investment Funds. General, administrative and other expenses of Consolidated Investment Funds decreased by $0.1 million, or 8%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022.
Net Gains (Losses) from Investment Activities and other. Net gains (losses) from investment activities and other increased by $3.0 million, to a gain of $0.2 million for the six months ended June 30, 2023 from a loss of $2.8 million for the six months ended June 30, 2022. This change was primarily driven by positive changes in foreign exchange currency rates primarily relating to Angelo Gordon’s European CLOs during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.
Interest, Dividends and Other. Interest, dividends and other increased by $7.0 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by higher effective interest rates on money market funds and bank deposits during the six months ended June 30, 2023 compared to the six months ended June 30, 2022.
Net losses from Investment Activities and other of Consolidated Investment Funds. Net losses from investment activities and other Consolidated Investment Funds were $12.1 million for the six months ended June 30, 2023 compared to a loss of $12.7 million for the six months ended June 30, 2022. The loss is primarily attributable to net losses on portfolio assets held by the Consolidated Investment Funds, partially offset by realized gains on the sale of certain CLO positions. The sale of certain CLO positions during the second quarter resulted in the deconsolidation of the CLOs as of June 30, 2023.
Interest, Dividends and Other of Consolidated Investment Funds. Interest, dividends and other of consolidated investment funds increased by $31.2 million, or 93%, for the six months ended June 30, 2023 compared to the six months ended June 30, 2022. This change was primarily driven by increased effective interest rates on variable rate credit assets held by CLOs.
Income Tax Expense. Income tax expense increased by $2.2 million for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 primarily due to an increase in statutory state and local income taxes for the six months ended June 30, 2023.
60
Year Ended December 31, 2022 compared to Year Ended December 31, 2021
Revenues
Revenues consisted of the following for the years ended December 31, 2022 and 2021:
| Year Ended December 31, | |||||||||||||||||||||||
| 2022 | 2021 | Change | % | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Management fees | $ | 433,301 | $ | 382,559 | $ | 50,742 | 13 | % | |||||||||||||||
| Incentive fee income | 7,317 | 2,482 | 4,835 | 195 | % | ||||||||||||||||||
| Expense reimbursements and other | 76,292 | 67,238 | 9,054 | 13 | % | ||||||||||||||||||
| Total fees and other | 516,910 | 452,279 | 64,631 | 14 | % | ||||||||||||||||||
| Incentive allocation investment income | 79,673 | 772,857 | (693,184) | (90) | % | ||||||||||||||||||
| GP investment (loss) income | (3,515) | 38,924 | (42,439) | (109) | % | ||||||||||||||||||
| Total capital allocation-based income | 76,158 | 811,781 | (735,623) | (91) | % | ||||||||||||||||||
| Total revenues | $ | 593,068 | $ | 1,264,060 | $ | (670,992) | (53) | % | |||||||||||||||
Fees and other revenues increased by $64.6 million, or 14%, during the year ended December 31, 2022 compared to the year ended December 31, 2021. This change resulted from a $50.7 million increase in management fees, a $4.8 million increase in incentive fee income and a $9.1 million increase in expense reimbursements.
Management Fees. Management fees increased by $50.7 million, or 13%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by increases in management fees of $18.4 million from Realty Value XI which was activated during the first quarter of 2022 and $10.7 million from Asia Realty V, which was activated during the second quarter of 2022. The change is also attributable to increases from MMDL IV of $17.7 million and Credit Solutions II of $12.8 million driven by higher FAUM during the year ended December 31, 2022. These increases were partially offset by a decline in management fees of $5.1 million from MMDL II and $4.5 million from Energy II due to continued harvesting of the funds’ portfolios.
Incentive Fee Income. Incentive fee income increased by $4.8 million, or 195%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by $3.9 million from certain Twin Brook BDC funds, and $0.9 million from other SMAs and single investor funds.
Expense Reimbursements and Other. Expense reimbursements and other increased by $9.1 million, or 13%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by an increase in reimbursable expenses of $7.3 million. Other fee income increased by $1.8 million due to new administrative agent loan fees being earned from AG Middle Market Direct Lending funds.
Incentive allocation investment income. Incentive allocation investment income decreased $693.2 million, or 90% for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily attributable to unrealized losses of $134.2 million from Core Plus Realty IV, $96.6 million from Credit Solutions I, $77.7 million from Realty IX, $63.3 million from MVP Fund, $32.9 million from an AG Structured Credit & Specialty Finance SMA and $32.7 million for Realty Value X.
61
The table below highlights incentive allocation investment income (loss) for the years ended December 31, 2022 and 2021:
| Year Ended December 31, | |||||||||||||||||||||||
| 2022 | 2021 | Change | % | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| AG Credit | |||||||||||||||||||||||
| MMDL III | $ | 35,643 | $ | 48,330 | $ | (12,687) | (26) | % | |||||||||||||||
| MMDL IV | 35,279 | 17,067 | 18,212 | 107 | % | ||||||||||||||||||
| MMDL II | 16,494 | 22,695 | (6,201) | (27) | % | ||||||||||||||||||
| Essential Housing I | 8,002 | 5,834 | 2,168 | 37 | % | ||||||||||||||||||
| Essential Housing II | 6,441 | — | 6,441 | 100 | % | ||||||||||||||||||
| MMDL I | 4,413 | 5,949 | (1,536) | (26) | % | ||||||||||||||||||
| Commercial Debt Opportunities III | 2,589 | 6,602 | (4,013) | (61) | % | ||||||||||||||||||
| Energy IV | 1,805 | 17,094 | (15,289) | (89) | % | ||||||||||||||||||
| Corporate Credit Opportunities | — | 5,131 | (5,131) | (100) | % | ||||||||||||||||||
| Credit Solutions I Dislocation A | (3) | 9,541 | (9,544) | (100) | % | ||||||||||||||||||
| OWL Select | (301) | 12,338 | (12,639) | (102) | % | ||||||||||||||||||
| Super Fund | (349) | 19,288 | (19,637) | (102) | % | ||||||||||||||||||
| MVP Fund | (656) | 62,644 | (63,300) | (101) | % | ||||||||||||||||||
| Super Liquidating | (989) | 10,111 | (11,100) | (110) | % | ||||||||||||||||||
| Commercial Debt Opportunities II | (2,005) | 9,006 | (11,011) | (122) | % | ||||||||||||||||||
| Credit Solutions I | (21,071) | 75,568 | (96,639) | (128) | % | ||||||||||||||||||
| Other | 15,897 | 86,722 | (70,825) | (82) | % | ||||||||||||||||||
| AG Credit | $ | 101,189 | $ | 413,920 | $ | (312,731) | (76) | % | |||||||||||||||
| AG Real Estate | |||||||||||||||||||||||
| Realty Value X | $ | 76,629 | $ | 109,357 | $ | (32,728) | (30) | % | |||||||||||||||
| Asia Realty IV | 36,231 | 23,260 | 12,971 | 56 | % | ||||||||||||||||||
| Europe Realty III | 22,671 | 8,302 | 14,369 | 173 | % | ||||||||||||||||||
| Europe Realty II | 17,858 | 42,366 | (24,508) | (58) | % | ||||||||||||||||||
| Net Lease Realty III | 8,749 | 38,604 | (29,855) | (77) | % | ||||||||||||||||||
| Europe Realty I | (690) | 22,199 | (22,889) | (103) | % | ||||||||||||||||||
| Net Lease Realty IV | (4,791) | 1,102 | (5,893) | (535) | % | ||||||||||||||||||
| Realty VIII | (14,626) | 918 | (15,544) | NM | |||||||||||||||||||
| Growth Capital Partners I | (17,718) | 13,517 | (31,235) | (231) | % | ||||||||||||||||||
| Asia Realty III | (33,680) | (9,506) | (24,174) | (254) | % | ||||||||||||||||||
| Realty IX | (39,020) | 38,729 | (77,749) | (201) | % | ||||||||||||||||||
| Core Plus Realty IV | (70,162) | 64,033 | (134,195) | (210) | % | ||||||||||||||||||
| Other | (2,967) | 6,056 | (9,023) | (149) | % | ||||||||||||||||||
| AG Real Estate | $ | (21,516) | $ | 358,937 | $ | (380,453) | (106) | % | |||||||||||||||
| Total Incentive Allocation Investment Income | $ | 79,673 | $ | 772,857 | $ | (693,184) | (90) | % | |||||||||||||||
GP Investment Income. GP investment income decreased by $42.4 million, or 109%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by decreases of $7.3 million from Credit Solutions I, $4.2 million from MVP Fund, $3.9 million from Core Plus Realty IV, $3.7 million from MITT and $3.6 million from Super Fund during the year ended December 31, 2022 compared to the year ended December 31, 2021.
62
Expenses
Cash-Based Compensation, Benefits and Other. Cash-based compensation, benefits and other expense increased by $9.0 million, or 2%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by a $16.2 million increase in salaries and benefits due to higher headcount, partially offset by a $7.2 million decrease in bonus expense.
Equity-based Compensation. Equity-based compensation expense decreased by $23.7 million, or 70%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by $12.7 million decrease in equity-based compensation expenses for certain non-US employee deferred compensation programs which were terminated in January 2021 and a $9.5 million decrease related to MITT due to fewer grants of awards during 2022 as compared to 2021 as well as decreasing share price.
Performance Allocation Compensation. Performance allocation compensation decreased by $298.6 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was attributable to a decrease in incentive allocation investment income on which performance allocation compensation is based.
General, Administrative and Other. General and administrative expenses increased by $20.4 million, or 14%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by a $9.3 million increase in other administrative expenses, a $7.1 million increase in reimbursable expenses incurred on behalf of investment funds and a $2.8 million increase in information technology costs.
Depreciation and Amortization. Depreciation and amortization decreased by $1.9 million for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily due to lower amortization expense for software during the year ended December 31, 2022.
Interest Expense. Interest expense increased by $1.2 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Interest Expense of Consolidated Investment Funds. Interest expense of consolidated investment funds increased by $20.0 million, or 52%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by significant increases in effective interest rates on the variable rate debt held by CLOs.
General, Administrative and Other Expense of Consolidated Investment Funds. General, administrative and other expenses of consolidated investment funds decreased by $1.0 million, or 31%, for the year ended December 31, 2022 compared to the year ended December 31, 2021.
Net (Losses) Gains from Investment Activities and other. Net (losses) gains from investment activities and other decreased by $2.4 million, to a loss of $1.4 million for the year ended December 31, 2022 from a gain of $1.0 million for the year ended December 31, 2021. This change was primarily driven by $2.7 million loss from a direct investment.
Interest, Dividends and Other. Interest, dividends and other increased by $6.0 million, or 144% for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by a $3.4 million increase in interest income earned from money market funds and a $1.7 million increase in interest income on bank deposits due to higher effective interest rates during 2022.
Net Gains (Losses) from Investment Activities and other of Consolidated Investment Funds. Net gains (losses) from investment activities and other of consolidated investment funds decreased by $11.8 million, or 149%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by net losses on portfolio assets held by CLOs.
Interest, Dividends and Other of Consolidated Investment Funds. Interest, dividends and other of consolidated investment funds increased by $21.3 million, or 33%, for the year ended December 31, 2022 compared to the year ended December 31, 2021. This change was primarily driven by higher effective interest rates on variable rate credit assets held by CLOs.
Income Tax Expense. Income tax expense decreased by $3.5 million for the year ended December 31, 2022 compared to the year ended December 31, 2021.
63
Year Ended December 31, 2021 compared to Year Ended December 31, 2020
Revenues
Revenues consisted of the following for the years ended December 31, 2021 and 2020:
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | Change | % | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| Management fees | $ | 382,559 | $ | 371,267 | $ | 11,292 | 3 | % | |||||||||||||||
| Incentive fee income | 2,482 | 1,658 | 824 | 50 | % | ||||||||||||||||||
| Expense reimbursements and other | 67,238 | 61,414 | 5,824 | 9 | % | ||||||||||||||||||
| Total fees and other | 452,279 | 434,339 | 17,940 | 4 | % | ||||||||||||||||||
| Incentive allocation investment income | 772,857 | 24,100 | 748,757 | NM | |||||||||||||||||||
| GP investment income | 38,924 | 334 | 38,590 | NM | |||||||||||||||||||
| Total capital allocation-based income | 811,781 | 24,434 | 787,347 | NM | |||||||||||||||||||
| Total revenues | $ | 1,264,060 | $ | 458,773 | $ | 805,287 | 176 | % | |||||||||||||||
Fees and other revenues increased by $17.9 million, or 4%, during the year ended December 31, 2021 compared to the year ended December 31, 2020. This change resulted from an $11.3 million increase in management fees, a $0.8 million increase in incentive fee income and a $5.8 million increase in expense reimbursements and other.
Management Fees. Management fees increased by $11.3 million, or 3%, for the year ended December 31, 2021 compared to the year ended December 31, 2020. This change was primarily driven by increases in management fees of $9.9 million from MMDL IV, $5.7 million from MVP Fund and $4.8 million from Credit Solutions I, primarily due to additional closings and higher fee basis attributable to increased capital invested during the years ended December 31, 2021 and 2020. Management fees also increased $4.5 million from Northwoods CLO funds, CC Funding I & II and an AG Asia Real Estate SMA, which were activated during the year ended December 31, 2021. These increases were partially offset by decreases in management fees of $5.2 million from Super Fund, $5.2 million from MMDL II, $5.1 million from Europe Realty III and $4.2 million from Realty VIII, primarily due to continued realizations of the funds’ portfolios.
Catch-up management fees, resulting from additional capital commitments from limited partners, totaled $2.4 million, primarily driven by $1.2 million and $1.1 million for Europe Realty III and Net Lease Realty IV, respectively, for the year ended December 31, 2020.
Incentive Fee Income. Incentive fee income increased by $0.8 million, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily due to increased capital appreciation.
Expense Reimbursements and Other. Expense reimbursements and other increased by $5.8 million, or 9%, for the year ended December 31, 2021 compared to the year ended December 31, 2020, primarily related to increases in reimbursable costs from AG’s Netherlands investment business.
Incentive allocation investment income. Incentive allocation investment income increased by $748.8 million for the year ended December 31, 2021 compared the year ended December 31, 2020. This change was primarily driven by increases of $125.7 million from Realty IX, $80.2 million from Core Plus Realty IV, $78.5 million from Realty Value X, $56.9 million from MVP Fund, $49.7 million from an AG Structured Credit & Specialty Finance SMA and $44.1 million from Net Lease Realty III, primarily due to realized and unrealized gains during the year ended December 31, 2021.
64
The table below highlights incentive allocation investment income (loss) for the years ended December 31, 2021 and 2020:
| Year Ended December 31, | |||||||||||||||||||||||
| 2021 | 2020 | Change | % | ||||||||||||||||||||
| ($ in thousands) | |||||||||||||||||||||||
| AG Credit | |||||||||||||||||||||||
| Credit Solutions I | $ | 75,568 | $ | 50,421 | $ | 25,147 | 50 | % | |||||||||||||||
| MVP Fund | 62,644 | 5,761 | 56,883 | 987 | % | ||||||||||||||||||
| MMDL III | 48,330 | 27,847 | 20,483 | 74 | % | ||||||||||||||||||
| MMDL II | 22,695 | 15,295 | 7,400 | 48 | % | ||||||||||||||||||
| Super Fund | 19,288 | (446) | 19,734 | NM | |||||||||||||||||||
| Energy IV | 17,094 | 28,966 | (11,872) | (41) | % | ||||||||||||||||||
| MMDL IV | 17,067 | 2,224 | 14,843 | 667 | % | ||||||||||||||||||
| OWL Select | 12,338 | (6,109) | 18,447 | 302 | % | ||||||||||||||||||
| Super Liquidating | 10,111 | 116 | 9,995 | NM | |||||||||||||||||||
| Credit Solutions I Dislocation A | 9,541 | ||||||||||||||||||||||