After a new federal tax law in late 2017 dropped the highest corporate tax rate in the US from 35% to 21%, it wasn’t long before publicly traded private equity firms began contemplating the switch from a partnership to a C-Corporation.
Now, Leon Black’s Apollo Global Management has announced that it will flip to a C-Corp, assuming the firm’s board approves, effective sometime in 3Q. The reveal came in conjunction with Apollo’s 1Q financial results, combining to send the firm’s stock up almost 1%.
Private equity firms have long complained that their shares were undervalued, with Blackstone co-founder Stephen Scwharzman often leading the charge. In theory, flipping to a C-Corp could help fix the issue by making a firm’s shares more accessible to index funds and mutual funds, as well as removing other downsides of operating as a partnership, like the need to fill out complex K-1 tax forms.
The change comes after a healthy quarter for Apollo, albeit one that in at least some respects fell short of expectations. The firm posted distributable earnings in 1Q of $207.4 million, or 50 cents per share; that missed reported analyst expectations of 56 cents per share, but exceeded earnings of $188.6 million and 46 cents per share from the same period last year. Those figures represent the amount available to pay out to shareholders. Net income attributable to Apollo was $149.1 million in 1Q, marking a dramatic bump from losses of $58.2 million during 1Q 2018 and $187.2 million during a turbulent 4Q. Apollo increased its AUM to $303 billion during the first three months of 2019, up 22% YoY.
Apollo’s earnings report also offered a look at the performance of some of its recent funds. Here’s a closer look, taken straight from the release:
With some $46 billion in dry powder, it makes sense that Apollo has remained active on the dealmaking front. In two separate February deals, the firm took Aspen Insuranceprivate for $2.6 billion and agreed to buy a majority stake in 13 local television stations owned by Cox Media in a move reportedly worth $3 billion. Last month, Apollo agreed to purchase California-based grocery chain Smart & Final for $1.1 billion. And on Thursday, Reuters reported that Apollo-backed Watches of Switzerland had begun exploring a London IPO that could value the retailer of Rolex, Cartier and Omega products at as much as £1 billion (about $1.3 billion).
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Original article posted here.