Apollo real estate acquisition collapses

The deal, which would have doubled the alternative manager’s debt and equity real estate assets to $27 billion while boosting the firm’s permanent capital to $95 billion, has fallen through. Neither Apollo nor AR Capital gave an explanation.

Apollo has dropped its planned purchase of a controlling stake in AR Capital. The firms said they had mutually agreed to end the deal in a joint statement today (9 November). 

In tandem with the dropped AR Capital deal, Apollo also adjusted the terms and the scope of its partially completed acquistion of RCS Capital Corporation, which was tied to the original AR Capital deal. 

The firms said that AR Capital will purchase $25 million of RCS Capital Corporation preferred stock from Apollo for $25.6 million. While Apollo will buy RCS Capital’s wholesale distribution business outright for $6 million. 

In August, Apollo announced that it was set to buy AR Global Investments, the newly formed holding company for AR Capital. The transaction would have more than doubled Apollo’s real estate assets under management (AUM) to $27 billion, while boosting the total permanent capital managed by the firm to $95 billion.

RCS Capital Corporation is a wholesale investment distribution business and transfer agent. Under the original agreement announced over the summer, Apollo bought RCS stock for $25 million and agreed to buy another $25 million in freshly issued capital. Today’s announcement cancels that deal, sees AR Capital buy back the original $25 million in equity at a premium while Apollo will buy RCS Capital’s wholesale distribution business for $6 million in cash, subject to some price adjustments. The transaction cuts the price and how much of the business Apollo will buy. The alternative manager will now just purchase the wholesale distribution business and the sale does not include RCS’ transfer agent and transaction management businesses. 

“We are pleased the transaction has been re-aligned, and we believe the pending acquisition of the wholesale distribution business demonstrates Apollo’s long-term commitment to the retail investment management channel,” said Marc Rowan, co-founder and senior managing director of Apollo.

Rowan and Anthony Civale of Apollo, who had joined RCS Capital’s board of directors, have resigned those positions. Apollo did not explain why it has reduced the scope of the purchase or why it had fully cancelled the planned AR Capital transaction. 

Apollo said that it was partnering with the management team of RCS Capital’s distribution business, Bill Dwyer and Louisa Quarto, on the deal. The revised terms mean the RCS Capital sale is no longer contingent on the AR Capital transaction and RCS Capital is free to “optimise its wholesale distribution cost structure and align its core business units to current market opportunities prior to closing”. 

The merger with AR Capital has been dropped entirely. Apollo had been set to pay $378 million upfront, split between $200 million in cash and $178 million of Apollo equity, plus future performance-related contingent consideration for a majority stake in the firm. Neither party confirmed why the deal fell apart.

AR Capital was founded in 2006, and managed approximately $19 billion of alternative assets across a variety of real estate investment trusts, business development companies, mutual funds and other partnerships, according to the August announcement. The firm focuses on real estate strategies including net lease, healthcare, retail, office, hospitality properties, and more recently, yield-focused credit strategies including commercial real estate debt, corporate credit and structured credit. 

New York-listed Apollo Global Management has 15 offices globally and assets under management of approximately $162 billion as of September 30, 2015 in private equity, credit and real estate funds.