- David McNew/Reuters
The good times are rolling again.
That’s according to Josh Harris, the cofounder of private-equity firm Apollo Global Management.
“The financing markets are back. They’re back in all their glory,” Harris said on a first-quarter earnings call on Thursday.
The New York-based firm’s potential leveraged-buyout deals evaporated when the high-yield market went in to a tailspin late last year.Investors were spooked by the possibility of wide-spread defaults, prompting a massive sell-off.
That made raising new financing for takeovers almost impossible.Harris had said in January that the “financing markets are shutting down” and the firm’s “entire private equity pipeline dried up,” according to Bloomberg’s Devin Banerjee.
That hurts private-equity firms because they usually use debt to finance takeovers. Private-equity activity dropped off sharply as a result.
It also hurts Wall Street banks, which tend to get a big chunk of fees from PE firms. The amount of fees they paid to Wall Street banks dropped 38% in this year’s first quarter to $2 billion, according to Dealogic. That’s the lowest since 2010.
But things have changed. High-yield bonds, aka junk debt, have rebounded. Financing markets have reopened. Private-equity deals are happening again. And that spells good news for Wall Street.
Devin Ryan, an analyst at JMP Securities, asked Harris about the financing markets on the Q1 earnings call. Here’s what he said (emphasis added):
Yes … the financial markets are back. They’re back in all their glory. Literally, again, things were relatively shut down for a few months, and now we concluded a number of transactions based on having a rough expectation or an expectation of a relatively rough financing market and pricing that in. And then sometime having a little luck is good because the deals – we priced Fresh Market, we priced ADT.
Obviously, we still have a pipeline of deals to go into the market, but all the deals are getting done ahead of our expectation when we did the deals. And so the financing markets, the high-yield markets was down five and now it’s up six. It was down five last year. It’s been up six or so in the first four months.
Apollo announced a $6.8 billion deal to buy electronic security-systems provider ADT Corp. in February, and also recently announced a deal to buy grocery chain Fresh Market for about $1.4 billion.
Elsewhere in private equity, Hellman & Friedman this week has agreed to a deal to buy health-insurance agency MultiPlan from Starr Investment Holdings. Activity is picking up again.
Now, the market can take a turn for the worse again just as quickly as it rebounded. Harris is focused on taking advantage of the more positive conditions while they last. He said (emphasis added):
So things are – the good times are rolling again at least for this month, but you can’t really predict what will happen given the relatively muted financial fundamentals of the economy, but very aggressive monitory technical out there in the world.
And there’s sort of a battle between fundamental and technicals and one-month fundaments wins and then another month technicals wins, and you just have to be really on your toes to navigate what’s a very challenging environment.