Black: Apollo has spent $4bn since October

Good companies with bad balance sheets and strategies outside the LBO box provide opportunities galore, said firm co-founder Leon Black at the Milken Institute's ongoing conference in Los Angeles.

Traditional mega-buyouts are tougher to do as lenders remain hawkish and valuations remain high, but current market conditions are providing plenty of other deal flow that a panel of private equity titans today said would produce outsized returns.

“Banks are open for business for the right deal,” Apollo Management co-founder Leon Black told delegates gathered at the Milken Institute's Global Conference in Los Angeles. “Volatility is not one's enemy as an investor.”

Apollo, for example, has deployed some $4 billion in equity since October, he said, noting it's been in non-traditional private equity transactions such as its $1 billion all-equity deal for a 51 percent stake in Norwegian Cruise Lines.

I don't think what's happened with Blackstone's [share] price will be that relevant over time.

Leon Black

Terms may be tighter, but “deals are still getting done”, said David Jackson, chief executive of Istithmar World Capital. The industry has simply increased its focus on mid-cap deals, representing a return to normalcy and private equity’s “bread and butter” deals, he said.

“That’s what I’m doing now and I call it back to the future,” said Thomas Lee, head of New York-based Thomas H. Lee Capital and the former head of Boston-based buyout firm Thomas H. Lee Partners. “These are smaller deals, say $300 million, $500 million up to $2 billion.”

Among other predictions, David Solomon, co-head of investment banking at Goldman Sachs, forecasted an increased focus on certain distressed sectors such as financial services.

Financial services investments are “a huge incoming area for us”, said Lee. He argued that aside from a few firms like JC Flowers, the sector hasn’t been very well covered as sponsors have avoided heavily regulated industries.

Black also said credit market dislocation is giving way to lucrative distressed and credit-oriented deals – a trend he sees continuing for at least 12 to 18 months when credit markets will likely regain their health as banks clear backlogged balance sheets.

“There are tremendous opportunities certainly on the credit market side when you can buy levered bank loans and get mid-20s-type returns. That’s highly attractive,” he said, noting that Apollo recently snapped up some $6 billion in LBO debt from Citi’s balance sheet.

While Black said he couldn’t discuss certain things about Apollo due to its pending public float, he did defend The Blackstone Group’s sinking share price.

“I don’t think what’s happened with Blackstone’s price will be that relevant over time,” he said.

Public markets have yet to fully grasp private equity fund strategy and their long term, as opposed to quarterly investment horizons, he said.

“That doesn’t take away from fact that Schwarzman has built an incredible firm,” Black said. “They’re very good at what they do and they create long term value.”