Investing

Apollo Global Gets Higher Price Target, but No Respect

Paul Ausick

Published: March 22, 2016 12:05 pm

Last Updated: January 13, 2020 11:38 am

Publicly traded private equity firm Apollo Global Management Inc. (NYSE: APO) received a boost to its price target Tuesday morning when analysts at Jefferies raise the target from $17 to $20 a share while maintaining a Buy rating on the stock. Apollo recently announced take-private deals for The Fresh Market Inc. (NASDAQ: TFM) and ADT Corp. (NYSE: ADT). A third health care acquisition brings Apollo’s total recent spending spree to around $9.4 billion.

So why is Apollo trading below its April 2011 initial public offering (IPO) price of $18 a share? In fact, since Fortress Investment Group LLC (NYSE: FIG) became the first private equity firm to come public in 2007, six of the eight top firms are trading below their IPO prices.

The Financial Times reported Monday that investors appear to have taken private equity (PE) firms at their own word. The firms, that have rebranded themselves as “alternative asset managers,” have thrived on finding undervalued companies, buying them cheap and then generating cash flow. At some point the rejuvenated company is either offered in an IPO or sold outright.

But are investors really undervaluing firms like Blackstone Group L.P. (NYSE: BX), KKR & Co. L.P. (NYSE: KKR) and Carlyle Group L.P. (NASDAQ: CG)? Profits for the firms and their investors come when assets are sold, not when they’re acquired.

According to IPO ETF manager Renaissance Capital, over the past three years, PE-funded companies that have completed IPOs have dropped from 68 in 2013 and 71 in 2014 to just 39 in 2015.  The total dollar value of these IPOs has dropped from $24.5 billion and $25.0 billion to $11.3 billion in the same time span.

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