While the economy was teetering on the brink of collapse, Apollo Global Management was ready to deal.
In early May, the firm was coming off a quarterly loss of nearly $1 billion after the economic chaos that came with the onset of the pandemic. But for a versatile investor like Apollo, chaos can be an opportunity. On an earnings call with investors, co-founder Josh Harris hinted that the firm could be on the verge of a dealmaking spree.
"While we believe that the broad markets are ahead of fundamentals, there are still a large number of companies that are over-levered and in need of restructuring or additional capital," Harris said.
Apollo has turned that belief into reality in the ensuing months, making a series of opportunistic moves aimed at capitalizing on the financial woes that have stricken so many businesses in 2020.
So far, the firm has relied heavily on PIPE deals, or private investments in public equity, by tapping a vehicle dubbed Hybrid Value, which closed in July 2019 on roughly $3.3 billion. Rather than taking control of businesses through leveraged buyouts, Hybrid Value uses a combination of debt and equity to take minority stakes in distressed public companies, allowing them to remain on the stock market.
Apollo deployed the Hybrid Value fund in April when it teamed with Silver Lake to purchase a $1.2 billion stake in Expedia, an online travel booking company hammered by the pandemic. Four months later, the deal already appears to have paid off: Expedia's share price is up some 60% since the day prior to Apollo and Silver Lake's bid.
Other major private equity firms have also emphasized PIPE deals during the pandemic. Blackstone agreed last month to take a stake worth roughly $300 million in Tricon Residential, a publicly traded operator of single-family rental homes. That move came just days after Bain Capital pledged $750 million to Nutanix, a publicly traded developer of cloud-based enterprise software.
PIPE deals have also emerged as a common aspect of the ongoing boom of interest in special-purpose acquisition companies. When a SPAC strikes a deal to combine with a private company, the transition onto the public market often comes with a substantial PIPE investment to complement the capital raised by the SPAC in its initial IPO.
"PIPE deals can be an attractive means to put meaningful amounts of capital to work rather quickly when activity in private markets grinds to a halt," PitchBook analyst Wylie Fernyhough said. "Since public markets often display more volatility than private markets, significant appreciation in a short time frame can produce healthy returns, as we have seen from some recent PIPEs, including Apollo's Expedia investment."
Also in April, Apollo announced a $300 million investment from Hybrid Value in Cimpress, a Dublin-based commercial printing company that owns Vistaprint and several other printing brands. The company's stock has since rebounded some 25%.
Apollo has also struck multiple 10-figure deals with private companies on the brink of going public. In April, the firm joined Oaktree Capital Management and several other lenders in providing Airbnb with a $1 billion loan as the vacation rental platform prepares for a possible public debut. And in May, the Hybrid Value fund led a $1.75 billion investment that gave an Apollo-led group a 17.5% stake in Albertsons, valuing the Boise-based grocery chain at some $10 billion.
Unlike the deals with Expedia and Cimpress, Apollo's backing of Albertsons failed to make an immediate impact. Albertsons successfully conducted its IPO in June, but the company's market cap is now less than $6.5 billion.
Private equity investors are always looking for chances to buy low and sell high. For a firm with Apollo's collective experience and expertise, the market disclocation that comes from widespread economic upheaval can lead to very attractive discounts—and thus the prospect of very attractive returns. As an example, take Apollo's seventh flagship buyout vehicle, which closed on $14.7 billion shortly before the beginning of the 2008 global financial crisis. That fund finished in the top quartile of its benchmark, according to PitchBook data, bettering rival mega-funds from firms such as Advent International and TPG Capital.
Other major new investments by Apollo in recent months have been focused on the energy sector. In August, the firm agreed to pay $265 million for a minority stake in US Wind, an offshore wind specialist. In early September, it agreed to purchase a 49% stake in certain real estate assets controlled by the Abu Dhabi National Oil Company at a $5.5 billion valuation.
Apollo closed its latest flagship fund on $24.7 billion in 2017, at the time the largest buyout fund in history. The vehicle has publicly been quiet in recent months. But in July, Harris expressed hope that traditional buyout opportunities could pick back up after a coronavirus-inspired lull, potentially adding another attractive deal type to Apollo's crisis arsenal.
"Private equity pipelines are actually picking up," he said. "There continues to be value-oriented opportunities or sweet spots. All of what we've done is debt in our private equity businesses. I think we're seeing that changing a little bit as our pipeline is changing into more traditional private equity."