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 is loving its outlier status. 

The New York firm capped off a busy week of earnings for its peer group with better-than-expected results, thanks in part to advisory and transaction fees (which I wrote about last quarter). On a call with analysts, co-founder Josh Harris took the opportunity to highlight this notable detail: in spite of heightened valuations, Apollo is on pace to spend more in 2016 than it has in any other calendar year, with $12.5 billion already committed or deployed as of Sept. 30. 

It's well known that Apollo has been on an deal binge, and no surprise that $8.2 billion out of that total stems from its private equity arm, which has announced or completed six take-privates so far this year. By taking contrarian views and snagging reasonable prices for deals that its peers discount as too risky, like Outerwall (operator of Redbox DVD kiosks) and struggling University of Phoenix owner Apollo Education, the firm has been able to outspend the likes of Blackstone Group. That's a feat considering its larger rival has more than double the assets under management and triple the dry powder.  

Dancing To Its Own Beat
Unlike its peers, Apollo Global Management is more focused on buying than selling
Source: Company filings, presentations
*KKR doesn't break out its capital deployed/invested

Apollo's dealmaking has certainly been helped by the fact that it has some large debt investors in its corner, including Canada's Public Sector Pension Investment Board, at a time when traditional lenders are refraining from financing certain leveraged buyouts.

But it also has the support of a pretty large number of institutional investors: Harris estimated that Apollo's companies have leaned on some 450 institutions for $40 billion in borrowings, with more than 70 percent of those investors participating in more than one Apollo debt deal. These include recent dividend recapitalizations for companies like Verallia, a glass-bottle unit it acquired a year ago. (KKR & Co., too, has been tapping the market this way, raising money via companies it owns for payouts to itself.) 

If Apollo wants to maintain its pace of investment, it should tread carefully when dealing with high-yield investors. It's a group with whom the firm has had a fractured relationship, because of the perception by some that it protects its own interests in distressed companies at the expense of creditors (Caesars being one example cited). There are signs of concern: a $1.2 billion bond backing its Rackspace Hosting acquisition found buyers, but not before some of its terms were described as "outrageous" and "unprecedented" because they arm Apollo with "opportunities for manipulation," according to Covenant Review, an independent credit research firm. 

Long Road Back
Even though its shares have outperformed rivals in the year to date, Apollo is still trading well below its recent highs.
Source: Bloomberg

As we know, debt providers -- be they banks, alternative lenders or those they sell to -- can scuttle transactions. With more than $6 billion of its current private equity fund to spend, and another $18.5 billion fund potentially on track to be raised by this time next year, any further breakdown in that relationship is something Apollo should avoid. 

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

  1. Blackstone's private equity AUM as of Sept. 30 was $100 billion, compared to Apollo's $42 billion. Blackstone's private equity dry powder was $45 billion, triple Apollo's $15 billion.

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