The original version of this story incorrectly identified Apollo Global as the owner of Dave & Busters
NEW YORK (
Apollo Global Management
, the private equity giant, gives Wall Street a bad name. And that's saying something.
Apollo has a track record of buying companies, loading them up with millions in debt and then dumping them on the public. Bankers, though, may be getting tired of being Apollo's enablers as the offerings are beginning to get pulled. Who wants to jeopardize customer performance to keep Apollo happy?
is the next big offering on the way from Apollo. It too has great name recognition. The company is home to some of the most famous real estate brokerages, brands like
Better Homes & Gardens
. Realogy is hoping to raise $1 billion and price its shares between $24 and $26 with a planned launch on Oct. 11.
If the IPO goes off as planned, Realogy will have a net worth of $1 billion, but also debt totaling $4.56 billion. That's a lot of houses to sell. But Apollo says, not to worry. Why? Realogy has a net operating loss of $2.1 billion that it can use to offset tax liabilities related to future income. That will allow the company to use more of its cash flow to pay down debt.
Realogy and its new investors, though, will be at the mercy of the housing market, hardly a stable business since the financial crisis.
Let's look back at another Apollo deal that has followed this strategy:
. The giant gambling concern was taken private by Apollo and TPG in 2008. They piled on $12 billion debt and then suckered some investors into buying the stock. The stock went public in February with shares price at $9 each. The stock nearly doubled shortly after its debut but it has since steadily deteriorated, closing this past Friday at $6.58.
Caesars missed out on the Macau market and is now looking to India as a source of growth. Otherwise the company is completely dependent on Las Vegas and Atlantic City. Another IPO sold on a hope and a prayer. The big winners with Caesars are bond holders that are earning yields of 15%.
The financials are ugly as Caesars has had five straight quarters of losses and may now need to restructure its debt. Moody's gives the company a credit rating level reserved for customers in "poor standing." Remember if this company goes under, those bond holders come first and those unlucky IPO buyers? Well, buying this stock was a roll of the dice.
is another Apollo deal that fell flat. It too was bought by Apollo in 2006 and then sold to the public last week. Debt? $3.8 billion. It was priced at $16, but opened at $15.25 and can now be bought for $15.00. Apollo still owns 59% of Berry, but with the way they've burned the public on these deals investors have less appetite to help Apollo out.
Even Apollo's own IPO hasn't gone well. The company went public in 2011, priced its shares at $19 and hasn't seen that level since.
noted in its second quarter 2012 review that private equity-backed IPOs deal size was down 51% and proceeds fell 56%. At the time of the review Renaissance noted that
Ignite Restaurant Group
was the shining story of the group. That company has since gotten in trouble for its accounting and dropped from $19 to $13 a share.
To be fair, they haven't all been losers. Apollo brought out
and that stock has performed fairly well. But even GNC went to the IPO table only to be pulled at the last minute and similar to the others, it is loaded with debt. GNC carries a little over $1 billion in debt, but luckily the company was helped with increasing revenues.
Still GNC is fighting many lawsuits related to the
supplements and is subject to product recalls -- the most recent being a peanut butter product. The stock, though is up 36% for year-to-date.
The lesson? When an investor sees Apollo is associated with an IPO, he or she should look closely at the debt levels and logically think about what it will take for the company to be able to pay off that sum. If the answer is one perfect quarter after another, they may want to steer clear of helping Apollo out with said debt.
After all, many of the buyout firm's deals have come to market with plenty of flash and buzz. But it hasn't taken long for a lot of these bright lights to dim when the reality of their debt-laden balance sheets begins to set in.
Written by Debra Borchardt in New York.
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