Private equity powerhouse, Apollo, blows up

Posted Dec 7th 2008 4:10PM by Tom Taulli
Filed under: Private Equity

Just a few years ago, Leon Black -- the leader of private equity operator Apollo Group – was a master of the universe. In fact, he got his start by working with the master of the universe of the 1980s, Mike Milken.

Interestingly enough, Black made a fortune when the junk bond market imploded in the early 1990s. He knew what investments were good -- and scooped them up. So, with his penchant for distressed investments, it seems that the current environment would be ideal for Black?

Maybe not.

Today's New York Times includes a detailed piece on Black's many missteps. For example, one of Apollo's investments -- Linens 'n Things – has gone bust. Moreover, it looks like there is trouble with other portfolio holdings, such as Harrah's, Claire's, and Realogy.

There are even lawsuits. For example, the buyout of Huntsman (NYSE: HUN) went to court and now Apollo is required to do the deal. Something else: Black's long-time friend, Carl Icahn, is suing over a deal.

Essentially, Black was doing his job; that is, buying up companies with cheap debt. But of course, few people anticipated the oncoming recession and severe credit crunch.

As a result, Black is now focused on the existing portfolio, trying to keep deals alive. Also, he has billions of dollars to make further investments, especially in corporate debt.

Over the years, Black has been adept at dealing with tough times. But, this period is particularly tough. Then again, that's why he gets the big bucks, right?

Tom Taulli is the author of various books, including The Complete M&A Handbook and The Streetsmart Guide to Short Selling: Techniques the Pros Use to Profit in Any Market. He is also the founder of BizEquity, a valuation website.

Tags: Apollo Group, ApolloGroup, Leo Black, LeoBlack

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Reader Comments (Page 1 of 1)

12-07-2008 @ 11:54PM

Theo O'Brien said...

This conclusion seems a rather extreme reading of the situation facing Apollo. Indeed, Apollo is facing a lot of problems but 'Apollo blows up'? It is a tough market and you correctly have pointed to his experience with distressed investments. Also mentioned in the article by Black 'is that the Linens bankruptcy barely singed his investors, costing them half a percentage point on returns.' While this isn't by any means saying that Black's funds are doing well, I don't think they are tanking in the way the article represents them. I could be wrong and Apollo could 'blow up' but I'll wait til I see it. Thanks for the commentary though Mr. Taulli.

Theo O'Brien
http://PrivateEquityBlogger.com