Apollo GLobal Management delayed its IPO on Tuesday, March 15, just after Reuters and CNBC reported that Apollo was test marketing a potential price range of $18-$20 for 26 mllion shares all from shareholders, a $494 milliion IPO. With an estimated 300 million shares to be outstanding, Apollo Global Mgt would have had a $5.5 billion market capitalization.
Compare Apollo with publicly held general partnerships like Blackstone (NYSE:BX), KKR (NYSE:KKR) and Fortress (NYSE:FIG) and Och-Ziff Capital Mgt (NYSE:OZM). OCH is a similar, not identical business, but pays dividends in the same range.
The primary players have experienced a bull market in their stocks over the past six months. As a group BX, KKR & FIG are up 57%. Individually the numbers are BX +54%; KKR +63% and FIG +54. Apollo wanted to join the parade. OZM is up 7%
What’s common for the companies:
- Blackstone has an unbroken three year record of losses.
- Fortress shows four years record of losses.
- KKR has lost money on an operating basis for three straight years, and paid out only 5% of net income to the public vehicle for 2010.
- Och-Ziff Capital Mgt. has a four year record of losses.
- Apollo did show a profit for 2010, after losses in 2009 and 2008.
DIVIDENDS SUPPORT THE STOCKS -- The current dividend payout rates are the following: BX 7.29%; KKR 6.72%; FIG 0; OZM 6.35%. To be competitive with BX and KKR Apollo would need to pay around 7%.
FINANCIAL STATEMENTS MURKY, NOT HELPFUL -- Financial statements -- of private equity general partnerships inside global alternative asset managers -- are not transparent and in general are not very comparable, in large part due to carried interest. Carried interest is a share of the profits of a successful partnership that is paid to the manager of the partnership.
Also, in general these companies are set up so that a very large share of reported income goes to "non-controlling" interests. It’s called ‘non-controlling’ because the insider shareholder management of the public vehicle has voting "control," even though the same group usually owns most of the "non-controlling" shares.
- KKR’s 2010 financial statement shows that only 5% of 2010 net income was allocated to the public vehicle. The other 95% was allocated to ‘non-controlling’ (minority?) interests.
- For Blackstone in 2010 the public vehicle was allocated a $370mm loss, or 61% of the pre-non-controlling allocation loss of $607 million.
- For Fortress the public vehicle was allocated 36% of 2010’s loss of $781 million.
- In the case of Apollo’s SEC filing, the public vehicle gets 17% of the net income.
Reuters and CNBC reported that Apollo was considering a price rang mid-point of $19 with an estimated $5.5 billion market cap for the 17% allocated to the public.
For the year ended December 31, 2010:
- KKR allocated 5% of profits to the public vehicle, which has a market cap of $3.4 billion.
- BX allocated 61% of its loss to the public vehicle, which has a market cap of $20.5 billion.
- FIG allocated 36% of its loss to the public vehicle which as a market cap of $2.62 billion.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.