Apollo Global Management's IPO Prices at the Top of the Range

| About: Apollo Global (APO)
Apollo Global Management LLC (APO) priced its long-awaited IPO of 29.25 million shares at $19.00, at the top of the indicated range of $17-19. The company originally filed in 2008, but had to put its plans on hold due to market conditions.
Of the 29.25M shares, the company is selling 21.25M and the selling shareholders (including Goldman (NYSE:GS), Ivory Funds, and Scoggin Capital) are selling 8.26M. No one in the company is selling shares, and some members of management are buying on the deal. At the $19 price, the company has a market capitalization of approximately $7.1B. The offering is led by Goldman, JPMorgan (NYSE:JPM), BofA Merrill (NYSE:BAC), Citi (NYSE:C), Credit Suisse (NYSE:CS), Deutsche Bank (NYSE:DB), and UBS.
Established in 1990 by managing partners Leon Black, Joshua Harris and Marc Rowan, Apollo is a leading global alternative asset manager with a contrarian, value-oriented investment focus. The company has $68B of assets under management (AUM), with an integrated global platform across private equity (57%), capital markets (33%) and real estate (10%). APO has achieved a 26% private equity net IRR over its 20-year operating history, which outpaces the S&P 500 (9% over the period), all private equity as a group (13% over the period) and the top quartile of private equity (20% over the period). Since inception, none of its funds have returned less than 8%.
The primary public competitors would be Kohlberg Kravis Roberts (NYSE:KKR) and Blackstone (NYSE:BX). Apollo states that 70% of the deals it generates are proprietary, so there is no competition on the deal, which leads to a better purchase price. BX and KKR have both experienced healthy appreciation in their stock prices in the last six months, and both reported strong 4Q’10 results. Along with the 4Q returns, there has also been an influx of PE-backed IPOs in 1Q’11, with a number of high-profile names still on the docket for the remainder of this year to boost the stock prices in this sector. AMC Entertainment is scheduled to complete its IPO in 2011, after filing last year.
The company has a history of strong performance during periods of market turbulence. From 2006 to 2010 it grew: AUM at a 29% CAGR to $67.5B; Revenue at a 32% CAGR to $2.11B; and total management fees at a 21% CAGR to $431M.
This asset class often uses a non-GAAP measure of performance known as economic net income. Economic net income is net income excluding the impact of income taxes, noncash charges related to vesting of equity-based compensation and amortization of intangible assets. Economic net income for the company grew at a 38% CAGR from $377M in 2006 to $1.35B in 2010. On an adjusted basis, the economic net income for 2010 was $1.178B. At the $19 price, Apollo is coming at approximately 6x its 2010 adjusted net income, as compared to BX which is currently trading at 14x and KKR at 6.2x.
Upon the close of the books, the offering was described as well over-subscribed, and the top of the range pricing is usually a positive indication for day one performance. We will have to wait until trading Wednesday morning to find out for sure, but as one colleague asserted, “Don’t bet against Leon Black.”
Disclosure: I have no positions in any of the stocks mentioned, but could inititate a long position in APO within the next 72 hours.

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