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Summary

  • The rating on ARES is neutral-to-negative at the current price range.
  • Revenue plus other income was down -17% in 2013 vs. 2012. Net income was down -34%.
  • 37% of IPO proceeds are going to a selling unitholder.

Based in Los Angeles, CA, Ares Management, LP (NYSE:ARES) scheduled a $400 million IPO on the NYSE, with a market capitalization of $4.65 billion, at a price range midpoint of $22 for Friday, May 2, 2014.

The full IPO calendar is available at IPOpremium.

SEC Documents

Manager, Joint Managers: JPMorgan, BofA Merrill Lynch, Goldman Sachs, Morgan Stanley, Wells Fargo Securities, Barclays, Citi, Credit Suisse, Deutsche Bank, RBC Capital, UBS Investment Bank

Co-Managers: BMO Capital Markets, Keefe Bruyette Woods, SunTrust Robinson Humphrey

Imperial Capital Co., Mitsubishi UFJ Securities Co., SMBC Nikko

End of lockup (180 days): Tuesday, May 27, 2014

End of 25-day quiet period: Wednesday, October 29, 2014

Summary
ARES is a leading global alternative asset manager, with approximately $74 billion of assets under management and approximately 700 employees in over 15 offices in the United States, Europe and Asia.

Revenue plus other income was down -17% in 2013 vs. 2012. Net income was down -34%.

Also, 37% of IPO proceeds are going to a selling unitholder.

The target distribution of 80% of distributable income would generate a yield of 3.36% of the price range mid-point of $22, based on 2013 results.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

Cap (MM)

Rev

Erngs

BkVlue

TanBV

in IPO

Ares Management, L.P.

$4,651

2.8

5.9

n/a

6.7

9%

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

Dividend

Cap

Rev

Erngs*

BkVlue

TanBV

Yield

*before minority interests

ranked by price-to-revenue

Apollo Global Mgt. (NYSE:APO)

$4,420

1.2

1.9

1.7

1.7

2.0%

Ares Management, L.P.

$4,651

2.8

5.9

n/a

6.7

3.4%

Och-Ziff Capital Management Group LLC (NYSE:OZM)

$6,180

3.3

4.9

-46.1

-46.1

13.6%

Fortress Investment Group LLC (NYSE:FIG)

$3,120

5.5

9.8

3.8

3.8

4.4%

KKR & Co. L.P (NYSE:KKR)

$6,810

8.9

0.9

2.5

2.5

5.9%

The recent stock charts for APO, OZM, FIG and KKR have been mixed.

Conclusion
The rating on ARES is neutral-to-negative at the current price range.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above.

Business
ARES is a leading global alternative asset manager, with approximately $74 billion of assets under management and approximately 700 employees in over 15 offices in the United States, Europe and Asia.

ARES provides a range of investment strategies, and seeks to deliver attractive performance to a growing investor base that includes over 500 direct institutional relationships and a significant retail investor base across its publicly traded and sub-advised funds.

Over the past ten years, ARES' assets under management and total management fees, which comprise a significant portion of its total fee revenue, have achieved compound annual growth rates of 31% and 33%, respectively.

Since its inception in 1997, ARES has adhered to a disciplined investment philosophy that focuses on delivering strong risk-adjusted investment returns throughout market cycles.

ARES has created value for its stakeholders not only through its investment performance, but also by expanding its product offering, enhancing its distribution channels, increasing its global presence, investing in its non-investment functions, securing strategic partnerships and completing accretive acquisitions and portfolio purchases.

For the year ended December 31, 2013, ARES generated total management fees of $517 million and economic net income of $329 million on a standalone basis.

ARES' revenues are diversified, with more than 140 active investment funds under management, and stable, with approximately 84% of total fee revenue for the year ended December 31, 2013, derived from management fees (including 18% attributable to ARCC Part I Fees).

In addition, as of December 31, 2013, approximately 58% of ARES' assets under management were in funds with a contractual life of seven years or more, including 15% that were in its permanent capital vehicles with unlimited duration.

ARES believes each of its four distinct but complementary investment groups is a market leader, based on assets under management and investment performance, and has compelling long-term business prospects.

Each investment group has demonstrated a consistently strong investment track record, and ARES believes each is viewed as a top-tier manager by a loyal, high-quality investor base.

Dividend Policy

ARES expects to distribute to its common unitholders on a quarterly basis substantially all of Ares Management, L.P.'s share of distributable earnings, net of applicable corporate taxes and amounts payable under the tax receivable agreement. This is in excess of amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its businesses, to make appropriate investments in its businesses and its funds, to comply with applicable law, any of its debt instruments or other agreements or to provide for future distributions to its common unitholders for any ensuing quarter. This all is subject to a base quarterly distribution target range of 80% to 90% of distributable earnings.

ARES expects that its first quarterly distribution will be paid in the third quarter of 2014 in respect for the prior quarter. If ARES distributes 80% of distributable income, the annual yield at the price range mid-point of $22 would be 3.36%.

Competition

ARES expects to face competition in its trading, acquisitions and other investment activities primarily from other private equity, credit and real estate funds, specialized funds, hedge fund sponsors, other financial institutions, corporate buyers and other parties.

Pre-IPO 5% unitholders

AREC Holdings:

Michael J Arougheti 5.22%

David B. Kaplan 5.22%

Antony P. Ressler 24.45%

Bennett Rosenthal 5.22%

Use of proceeds

37% of IPO proceeds are going to a selling unitholder. ARES expects to net $237 million from its IPO. Proceeds are allocated as follows:

To purchase newly issued Ares Operating Group Units substantially currently with the consummation of this offering, to partially repay outstanding borrowings under the Credit Facility and for general corporate purposes and to fund growth initiatives. The Ares Operating Group will also bear or reimburse Ares Management for all of the expenses of this offering, which ARES estimates will be $25.3 million.

Disclaimer: This ARES IPO report is based on a reading and analysis of ARES's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Source: IPO Preview: Ares Management