To Michael Gross, founding principal alongside Leon Black of New York-based Apollo Management, distressed investing is a means to an end: a mechanism to acquire companies at attractive valuations. 'Apollo is a value-oriented buyout firm. We look to get control of well-run companies at attractive multiples.'
Speaking at the recent Salomon Smith Barney Private Equity Conference in Miami, Gross explained Apollo's way of doing business. He also looked at distressed investment opportunities in Europe, the current state of play in GP-LP relations and some of the key challenges facing private equity today.
At this point in the cycle, the cheapest way to do this is to go through a distressed strategy he explained. 'Our process is not a trading business. It's one where we seek out companies that we want to own and look to do that through buying their debt securities.' Apollo will buy up outstanding debt of a target company in order to become the largest creditor, determine a restructuring strategy for the business and prepare for an exit.
Until 1993, Apollo acquired around a dozen companies like that before switching to a more mainstream private equity approach. 'In a rising economy, distressed made no sense,' said Gross. Now distressed is back in vogue, and the group is currently out raising new capital to invest opportunistically in distressed assets.
Apollo was established in 1990. In 2002, the firm closed its fifth generalist private equity fund at $3.8bn, taking the total amount of capital raised from institutions up to that point to $13bn.