Saturday, March 26, 2011

Apollo Global Management's $1.1 Billion IPO


 Apollo Global Management will go public in a $1.1 billion share offering. Private equity underwriters (PEU's) will sell anything to make monstrous profits, including their distinctive competency of being a privately held entity. Consider this from APO's S-1:

Apollo is a leading global alternative asset manager (GAAM). We are contrarian, value-oriented investors in private equity, credit-oriented capital markets and real estate, with significant distressed expertise.

Here's what shareholders are buying, along with 32.9% of the economic interests of Apollo Operating Group.  :


Private equity is known for its out-sized returns:

Our private equity funds have generated a gross IRR of 39% and a net IRR of 26% on a compound annual basis from inception through December 31, 2010, as compared with a total annualized return of 7% for the S&P 500 Index over the same period.

Recall the tax break for firms buying back debt for pennies on the dollar.  Apollo took advantage of the debt crisis and Uncle Sam's largess:

For example, as of December 31, 2010, Fund VI and its underlying portfolio companies purchased or retired approximately $18.7 billion in face value of debt and captured approximately $9.3 billion of discount to par value of debt in portfolio companies such as CEVA Logistics, Caesars Entertainment, Realogy and Momentive Performance Materials.

Apollo's biggest investors are public pension funds, including CalPERS, and sovereign wealth funds from oil-rich Middle Eastern countries.

On July 13, 2007, we sold securities to the California Public Employees’ Retirement System, or “CalPERS,” and an affiliate of the Abu Dhabi Investment Authority, or “ADIA,” in return for a total investment of $1.2 billion. We refer to CalPERS and ADIA as the “Strategic Investors.”

In total, from our inception through the date hereof, the Strategic Investors have invested or committed to invest approximately $7.6 billion of capital in us and our funds.


It's not clear if CalPERS or Abu Dhabi Investment Authority plan to sell their shares in the IPO.  Nevertheless, Apollo went global in a big way:

Since the beginning of 2007, we have experienced significant globalization and expansion of our investment management activities. We have grown our global network by opening offices in Frankfurt, Luxembourg, Singapore, Hong Kong and Mumbai.
Like many PEU's, Apollo conducted a debt for dividend sale:

On April 20, 2007, AMH, one of the entities in the Apollo Operating Group, entered into a credit facility, or the “AMH credit facility,” under which AMH borrowed a $1.0 billion variable-rate term loan. We used these borrowings to make a $986.6 million distribution to our managing partners and to pay related fees and expenses.
Three months later, managing and contributing partners received another cash injection:

As part of the Reorganization, the managing partners and the contributing partners received the following, $1.2 billion in cash in July 2007, excluding any potential contingent consideration;

Apollo's selling shareholders and three managing partners, Leon Black,  Joshua Harris and Marc Rowan, will monetize their PEU and its forty six Cayman Islands subsidiaries.  It's not clear if ex-Senator Evan Bayh got shares for his role as Senior Advisor.

How will Evan's former peers in Congress set up Apollo's next distressed investments?  How will public ownership impact Apollo's management fees charged to affiliates, already at $431 million?   What happens when management greed is the cause of organizational distress?  Stay tuned....