The Wall Street Journal (subscription required) Weekend Edition's Billionaire Black's Latest Game of Investing Hardball provides an interesting look at Leon Black's Apollo Management LP, and some information about the future of the private equity industry. For one, private equity is relentlessly focused on the bottom-line, and often seeks to cut costs rather than grow revenues:
Like many buyout firms, Apollo sometimes stirs resentment at companies it buys with its unwavering focus on the bottom line. In late 2001, Apollo purchased Compass Minerals International Inc., NYSE:CMP)an Overland, Kan., salt and fertilizer maker, for $590 million, investing $102 million of the fund's money and borrowing the rest. Whenever Apollo executives visited, they "made a beeline for the accounting department," says former Chief Executive Robert Clark, who ran it for a year after the purchase. When he tried to discuss marketing, their "eyes would glaze over."
Last summer, Black appeared less than optimistic about the future of private equity:
"There are few bargains out there. Deals private-equity players would have required a 25% return on in the past are now being done for mid-teens returns. That may be OK if everything goes OK. But if we have an economic downturn, some of these deals will come back to haunt the people who did them."
This makes his decision to explore taking Apollo public, or selling a portion privately, all the more suspect. After all, with a net worth north of two billion dollars, he can't possibly need the money. It seems that the only reason for him to sell a stake in the company is to cash out because he's bearish on the future of private equity. And if Leon Black doesn't like the industry's futures, investors should avoid private equity IPOs.
