As credits markets improve and deal-making ramps up, some private equity firms are looking to raise cash by going public.
KKR recently made a filing to list on the NYSE exchange and should be trading within a month or so. And this week, Apollo Global Management filed with the Securities and Exchange Commission for a $50 million IPO. Currently, the firm trades on the private marketplace of Goldman Sachs (GS), which is called the GSTrUE system.
The Milken Protege
Armed with a Harvard MBA, Leon Black got his start in investment banking in the late 70s with Drexel Burnham Lambert. He worked with junk bond king Mike Milken and was a key player during the buyout decade of the 1980s.
When Drexel went bust, Black decided to start his own firm, Apollo Management. The timing was impeccable as he picked up a variety of distressed assets, which ultimately produced enormous returns. From this base, Black created a private equity empire with current assets of $53.6 billion.
However, the past couple years have been far from easy. Several of Apollo's investments have gone bust, such as Linens 'n Things. There was also the botched deal for Huntsman (HUN) that went into litigation (Apollo agreed to a $1 billion settlement).
Despite all this, Apollo has found ways to adapt. Some of the strategies include purchasing distressed debt and putting together debt-for-equity swaps.
The Apollo Deal
Apollo manages funds that span private equity, capital markets and real estate. The lead managing partners include Black, Joshua Harris and Marc Rowan, who have worked more than 20 years together. In all, there are 398 employees and the offices are in New York, Los Angeles, Frankfurt, Luxembourg, Singapore, Hong Kong and Mumbai.
On a long-term basis, Apollo has generated consistent returns on its private equity funds, with internal rate of returns (IRRs) of 26%. In fact, it's been during economic down cycles that the firm has generated the best results.
As for the public offering, Apollo wants to provide liquidity for its equity holders. Back in 2007, the firm sold 35.6 million Class A shares to private investors through GSTrUE. These shares will now be registered for sale in the public markets. Although, there are no plans for Apollo managers or employees to sell their shares.
At the same time, a public offering should make it easier for Apollo to bulk up its own operations. After all, as seen with recent deals from the Blackstone Group (BX) and Fortress Investment Group (FIG), it looks like valuations are still fairly attractive.
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