Two companies that long tried to sell themselves to the public have now spotted an opening as the late-winter freeze in the IPO market thaws out.
Investment firm Apollo Global Management LLC late Tuesday priced an expanded initial public offering at the top of its expected range, making the deal potentially worth more than $650 million. Its debut, delayed since April 2008, comes as the private equity industry recovers from the recession. The successful offering could open the door for other well-known investment firms, like Carlyle Group, to go public, said Matthew Rhodes-Kropf, a Harvard Business School professor who studies private equity, mergers and venture capital.
Meanwhile, the latest private equity-backed offering is vitamin chain GNC Holdings Inc., which is looking to raise up to $382.5 million this week. Apollo bought GNC in 2003 for $750 million, then tried and failed to take it public in 2004 and 2006. Apollo finally sold GNC in 2007 in a deal valued at $1.65 billion to investment firm Ares Management LLC and the private equity arm of the Ontario Teachers' Pension Plan, a large Canadian institutional investor that administers retirement funds for Ontario's teachers and former teachers.
Like it did with GNC, Apollo buys companies in trouble and tries to sell them for more, usually years later. It uses borrowed money to acquire such companies, a transaction known as a leveraged buyout.
The private equity model suffered during the financial crisis as deal-making collapsed, thwarting Apollo's planned IPO. The buyout shop had initially filed paperwork to go public in April 2008.
Now the company, founded by Leon Black in 1990, is finally going public as deal volume has rebounded and investor demand for private equity-backed IPOs has increased. Apollo is listing its shares on the NYSE under the "APO" symbol. On Tuesday it priced nearly 29.76 million shares at $19 each for total proceeds of $565.4 million. That includes 21.5 million shares being sold by Apollo and 8.26 million shares being sold by certain shareholders.
If underwriters exercise their option to buy up to 4.46 million more shares, the IPO would bring in $650.2 million. Apollo is planning to use the proceeds to fund growth plans and for general corporate needs.
Earlier this month Apollo had said it expected the IPO to encompass 26.3 million shares priced between $17 and $19 each, with 3.9 million extra shares up for grabs to cover high demand.
"The leverage markets are back," Rhodes-Kropf said. The boom in high-yield debt _ bonds of companies considered more at risk of default _ has helped pay for more deals. The deal value of private equity firms' buyouts worldwide grew to $204.22 billion in 2010 from $105.89 billion in 2009, according to data services provider Dealogic. In 2007, when Blackstone went public, deal volume was $670.87 billion.
Apollo and other firms are also having an easier time selling their companies back to the public this year as the economy recovers. While nearly half of such companies last year priced below the ranges underwriting banks had set, analysts say three blockbuster IPOs this year _ HCA, Kinder Morgan and Nielsen _ have helped improve prospects for other private-equity backed deals, helping the firms recoup their investments.
Private equity giant KKR & Co. LP listed on the NYSE last July, and its shares are up about 66 percent since then. Blackstone Group LP raised $4.1 billion in its IPO in June 2007. The stock has risen nearly 50 percent in the past six months, but remains 40 percent off its IPO price of $31.
Apollo's financials have improved recently. In 2010, revenue more than doubled to $2.11 billion and net income was $94.6 million compared with a loss of $155.2 million in 2009. Assets under management grew 26 percent to $67.6 billion. Economic net income, a financial measure favored by private equity firms that excludes stock-based compensation, income taxes and other items, more than doubled to $1.35 billion from $581 million.
GNC's business has also grown. The Pittsburgh-based seller of vitamins, herbal supplements and diet and sports nutrition products posted revenue of $1.82 billion last year, up from $1.71 billion in 2009. Net income rose 39 percent to $96.6 million from $69.5 million.
The company has more than 7,200 locations and says it is the largest nutritional supplements chain in the U.S. It plans to grow overseas, particularly in China, and increase its online market share with its website, GNC.com.
GNC plans to list on the NYSE under the symbol "GNC."
Also expected this week is an initial public offering from Qihoo 360 Technology Co., which supplies Internet and mobile security products in China. It is selling 12.1 million American depositary shares for $10.50 to $12.50 apiece, potentially raising as much as $151.3 million.