Apollo Global Management's busyness has been good for business.
The firm's second-quarter earnings beat expectations, sending its shares up as much as 5.1 percent on Wednesday. Part of the surprise can be attributed to advisory and transaction fees from affiliates, which jumped to its highest level in six quarters, bolstered by Apollo's dealmaking.
Of the $64.9 million haul this quarter, 90 percent, or $58.3 million, came from its private-equity arm, which earns fees for lining up deal financing and charges co-investors to participate in deals that are too big for it to complete alone, such as the $7 billion buyout of security company ADT, which closed in May. Co-investors, which are usually pension or sovereign wealth funds, have increasingly welcomed opportunities to invest directly in such deals, which can enhance their overall returns. And although they must fork out an upfront "admission" fee, co-investors avoid paying both management fees and carried interest on the extra licks of capital they provide.
As I've written, Apollo has been one of the busiest firms this year, snapping up public companies like The Fresh Market as well merging closely held equipment companies Maxim Crane Works and AmQuip Crane Rental. On Wednesday, it provided even more evidence, reporting that it deployed $5.9 billion in the June quarter, more than KKR and Carlyle combined.
The firm's chairman, chief executive officer and co-founder Leon Black said Wednesday that Apollo has a "robust pipeline of potential new investment opportunities."
If that's a sign of what's to come, analysts, who had expected second-quarter advisory and transaction fees of $10 million to $33 million, need to sharpen their estimates: Deals beget fees.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
A decent portion of KKR's total can most likely be traced back to its arrangement of loans for one of its companies, insurance-claims processor Sedgwick Claims Management Services, which enabled the payment of a dividend to its owners, the biggest of which is KKR.
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