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Apollo is on a mission: to get to market fast. The private equity group has chosen to go the 144A route. This is a special offering of shares to institutional investors that avoids the lengthy and painful process of registering with the Securities and Exchange Commission. Furthermore, it is likely to sell its shares at a valuation discount to what it might have garnered had it opted for a public listing, like Blackstone or Fortress.
No one likes to leave money on the table but this may be the cannier move in the end. The credit markets, on which leveraged buy-outs depend, are in a febrile mood to say the least. True, equity investors are still open for business, but Apollo is likely to have to compete for their attention with other financial sponsors, such as KKR, which are taking the traditional route to go public. Getting that 144A listing now, especially via a platform that has enough transparency and marketmakers committing capital to ensure enough liquidity, puts Apollo ahead of the game.
But, like a shark, it cannot stop moving. Its 144A offering makes most sense as an interim measure, with a public offering to follow sharpish. The problem with the 144A market is that an issuer is limited to no more than 499 shareholders. That makes it virtually impossible to use the currency for acquisitions or to retain employees – both oft-cited reasons for raising capital via a listing. In fact, Apollo is committing itself to taking that extra step. That should help its 144A offering, since potential investors can hope for a bump in the value of their holdings when the company graduates to a public listing. And if Apollo has figured out some way to avoid paying fees twice for its double-dip listing, that would be the icing on the cake.