New York-based Apollo Management has agreed to acquire the marketing services division of Cendant for approximately $1.83 billion (€1.5 billion).
The deal size includes about $1.7 billion in cash and $125 million in newly issued preferred stock of the purchaser, Apollo affiliate Affinity Acquisition Holdings LLC. Cendant will also receive warrants to purchase 7.5 percent of the common equity of the purchaser after four years or after Apollo achieves certain return hurdles, whichever is earlier.
Deutsche Bank was financial advisor to Apollo.
Cendant’s sale is part of an effort by the conglomerate to focus on its real estate and travel services, such as Avis car rental and Century 21 real estate. The deal also follows last year’s spin out of Jackson Hewitt Tax Services, with some of those proceeds being used for $1.25 billion takeover of online travel agency Orbitz. Earlier this year, Cendant also mortgage and fleet vehicle firm PHH.
Cendant’s Norwalk, Connecticut-based marketing division, which directly markets membership clubs and insurance products, generated revenue of $1.5 billion in 2004. It has about 3,600 staff in the United States and Europe. Cendant, which franchises hotels under the Days Inn and Super 8 brands, will remain a marketing partner and a provider of travel services to the unit.
The Cendant deal also ends the conglomerate’s ownership of a unit embroiled with controversy. The former CUC International merged with hotel franchiser HFS in late 1997 to form Cendant. But months after completion of the merger, a $500 million accounting fraud was exposed, causing Cendant’s stock-market value to plunge $14 billion in a day. E. Kirk Shelton, who was CUC’s chief operating officer and then Cendant’s vice chairman, was fired, along with Walter Forbes, CUC’s chief executive and Cendant’s chairman.
Most recently in May, Apollo agreed to take private Houston-based fabricator and distributor Metals USA for approximately $700 million (€557 million) in cash and assumed debt. Earlier that same month, PrivateEquityOnline.com reported that Apollo launched fundraising for its sixth vehicle with a target of $6 billion (€4.6 billion), according to LP sources. Apollo Investment Fund VI will follow the firm’s established strategy of opportunistically pursuing both distressed and “traditional” buyouts through both equity and debt positions.
The firm, led by founder and former Drexel honcho Leon Black, raised $3.8 billion for Fund V in 2001. The firm also manages real estate funds and a publicly traded business development company called Apollo Investment that raised $930 million in an IPO last April.