Black Says ‘Too Easy’ Money Making Europe Deals Less Attractive

Apollo Global Management LLC co-founder Leon Black said it’s becoming harder to find attractive investments in Europe as a flood of financing pushes up prices.

“Money is pretty easy right now, one could even say too easy,” he said in a speech at the SuperReturn International conference in Berlin today. “Loans are in abundance.”

Firms are paying about 9.5 times earnings before interest, tax, depreciation and amortization for a $500 million company in Europe compared with 9 times in the U.S., he said. Meanwhile, growth in Europe is lagging the U.S., he said.

With prices in Europe at that level, private equity firms may struggle to generate 20 percent annual returns, he said. Some may instead settle for low to “mid-teen” returns to complete deals, he added.

“Clearly the risk and reward on the corporate side is much more challenged in Europe right now,” Black said. “Overall, Europe seems be in more of a mess, and that would be the case over a longer period of three to five years.”

Private-equity firms like Apollo pool money from investors including pension plans and endowments with a mandate to buy companies within about five to six years, then sell them and return the funds with a profit after about 10 years. The firms, which use debt to finance the deals and amplify returns, typically charge an annual management fee equal to 1.5 percent to 2 percent of committed funds and keep 20 percent of profit from investments. Apollo’s investments include brokerage owner Realogy Holdings Corp.

Before it's here, it's on the Bloomberg Terminal.