Deals

Gillian Tan is a Bloomberg Gadfly columnist covering deals and private equity. She previously was a reporter for the Wall Street Journal. She is a qualified chartered accountant.

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.

Unpredictable
Apollo Global Management and its rivals earn advisory and transaction fees that are generally difficult for analysts to forecast
Source: Company filings

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. 

The firm is not alone in earning such fees -- rivals KKR, Blackstone and Carlyle banked $97.6 million, $33.6 million and $8.4 million respectively this quarter .

Earnings Bounce
Apollo Global Management's shares bounced to their highest level in almost nine months after it posted better-than-expected earnings
Source: Bloomberg

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. 

Opportunity Knocks
Apollo says it's been investing at a "nice pace" and has a robust pipeline of deals. Some of its rivals are having a tougher time.
Source: Company filings

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.

  1. 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.

To contact the author of this story:
Gillian Tan in New York at gtan129@bloomberg.net

To contact the editor responsible for this story:
Daniel Niemi at dniemi1@bloomberg.net