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Speaker 1: Bloomberg Audio Studios, podcasts, radio news.

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Speaker 2: I mean, we have nothing to talk about.

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Speaker 1: What a shame.

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Speaker 2: So look, this is a big deal, eleven billion dollars.

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Speaker 2: It does feel a very Apollo appropriate deal, but it

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Speaker 2: is something a little bit different than what you usually do,

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Speaker 2: perhaps in size and the type and industry it's in.

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Speaker 2: So how hard was this deal to do? What did

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Speaker 2: it take to get it over the line?

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Speaker 1: Sure?

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Speaker 3: Well, look, I think you're seeing if you take a

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Speaker 3: step back, companies all over the world are facing unprecedented

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Speaker 3: levels of cap x right, digitization, deglobalization, energy transition, and

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Speaker 3: they're starting to think more creatively about how are they

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Speaker 3: going to fund this? How are they going to fund

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Speaker 3: this capital and private capital is going to play an

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Speaker 3: increasingly important part of that. You know, the Apollo platform,

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Speaker 3: seven hundred billion dollars, equity credit hybrid, you know, lots

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Speaker 3: of different creative structures.

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Speaker 1: And the ability to scale it.

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Speaker 3: You know, these type of blue chip large cap companies,

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Speaker 3: they're not talking about one hundred million or five hundred million,

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Speaker 3: They're talking two billion, five billion, ten billion plus, and

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Speaker 3: so the ability to really come up with those creative

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Speaker 3: solutions in scale is really really critical. But I think

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Speaker 3: you're going to see more and more of this coming

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Speaker 3: because absolutely more from apollow but in general, just the

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Speaker 3: need for this type of capital is insatiable, is really.

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Speaker 2: I mean, we saw in the earnings report right all

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Speaker 2: these tech giants having an insane amount of copecks to

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Speaker 2: try to get their AI capacity up. Intel obviously is

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Speaker 2: one of them. They did those say that they're manufacturing

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Speaker 2: won't be profitable about twenty until twenty twenty seven, So

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Speaker 2: how much of this also is not just Apollo backing AI,

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Speaker 2: but Apollo backing Intel for the long term.

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Speaker 3: Absolutely, this is all about partner selections, structuring. Every situation

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Speaker 3: is going to be different. That's the beauty of private capital.

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Speaker 3: It doesn't have to fit one single box. You can

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Speaker 3: really be creative to meet the needs of the project,

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Speaker 3: the needs of the counterparty. And this is just a

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Speaker 3: great example of how you're going to see more and

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Speaker 3: more of this.

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Speaker 2: Yeah, if you're going to see more of it, I mean,

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Speaker 2: does Intel need more? They're trying to take a cracketed

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Speaker 2: video that is no easy.

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Speaker 3: Feed, right, Well, I think Intel's announced over one hundred

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Speaker 3: and fifty billion dollars a project, So that's just one

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Speaker 3: of I think many companies across lots of different industries

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Speaker 3: that really need this type of capity.

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Speaker 2: We're talking to other companies do besides Intel for this

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Speaker 2: type of thing.

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Speaker 1: Well, no comment, but you can probably assume.

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Speaker 2: Which is the last thing on this, Scott because I mean,

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Speaker 2: we are here in Europe, this is a europe deal.

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Speaker 2: It's a plant in Ireland, and Europe has been behind

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Speaker 2: on manufacturing. Is there some way that this is almost

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Speaker 2: a test tube, that's a test trial, and if this works,

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Speaker 2: maybe you do more in Europe like this?

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Speaker 1: Well, I think just zooming out a little bit.

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Speaker 3: I do think you touch on an important point, which

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Speaker 3: is if you compare the growth rates in Europe versus

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Speaker 3: the growth rates in the US.

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Speaker 1: Obviously it's undeniable. What's happening.

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Speaker 3: A big part of that is companies access to capital.

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Speaker 3: Right in the US, in addition to the banking system,

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Speaker 3: you have a very robust capital markets, a securitization market,

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Speaker 3: a very deep private capital market. Europe, all of those

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Speaker 3: things either don't exist or are very very small, very fragmented,

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Speaker 3: very nascent, And I think you need to see more

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Speaker 3: and more of this and you will start to see

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Speaker 3: private capital play a bigger role here in Europe.

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Speaker 2: Yeah, it's a tougher environment though, because there does feel

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Speaker 2: to be more regulation here. So how does that impact

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Speaker 2: your global allocation That there's opportunities here, but they're a

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Speaker 2: little bit harder to execute.

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Speaker 1: Well, it just makes it more complicated. But you're seeing it.

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Speaker 3: I think European leaders are starting to recognize that Europe

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Speaker 3: is choked for capital, that that is limiting the amount

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Speaker 3: of growth that Europe is falling behind, and it needs

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Speaker 3: this type of capital. It needs to encourage private capital,

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Speaker 3: it needs to encourage securitization in order to make that happen.

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Speaker 3: And you know, I know Europe's been talking about it

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Speaker 3: for a while, but you know, hopefully this is a

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Speaker 3: bit of the wake up call it needs to get going.

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Speaker 2: There's also a rate divergent story happening in about twenty

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Speaker 2: four hours, about three hundred miles from here, in Frankfurt,

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Speaker 2: we'll get what presumably will be the first cut of

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Speaker 2: this cycle from the ECB. Does that make a difference

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Speaker 2: to it all that maybe there's easier policy here.

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Speaker 3: No, I think that's more indicative of the need of

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Speaker 3: the economy needs to get boosted by I'd say artificial

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Speaker 3: lowering of rates as opposed to the US, where we've

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Speaker 3: been saying for some time the economy is so strong,

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Speaker 3: rate cuts probably don't make sense yet.

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Speaker 2: Right, Do you think that there's some people in the

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Speaker 2: US then that just have been doing the extend and

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Speaker 2: pretend that they bought deals at high valuations and have

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Speaker 2: just been hoping for rate cut. So what happens if

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Speaker 2: we don't get one this year and maybe only a

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Speaker 2: few next year?

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Speaker 1: Oh? I think that's absolutely right.

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Speaker 3: I think the reality of this, and I think what

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Speaker 3: you know, it's the morning of the conference here, but

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Speaker 3: I think you're going to see a lot of gps

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Speaker 3: and LPs coming to the recognition that it's going to

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Speaker 3: be a pretty dry spell for the next few years.

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Speaker 3: Vis a vis the old portfolio of private equity companies,

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Speaker 3: it's going to take longer to monetize. The valuation gap

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Speaker 3: between where folks loaded up on deals versus where the

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Speaker 3: market is today is just there's a big gap, and

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Speaker 3: it's going to be I think a little bit tough

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Speaker 3: for for private equity firms to see the type of

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Speaker 3: returns that they were looking for versus years past.

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Speaker 2: What does that actually look like or what causes that

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Speaker 2: dam to break, and then what does it look like

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Speaker 2: when it does.

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Speaker 1: Yeah, I don't know that it's so much a dam.

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Speaker 3: I think the reality is private equity loaded up at

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Speaker 3: the top of the market using very inexpensive debt. Valuation

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Speaker 3: environment has fundamentally changed, and as a result, private equity

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Speaker 3: sponsors are just going to have to hold companies longer,

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Speaker 3: have to grow into those capital structures, are going to

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Speaker 3: need to take on equity to get some refinancings done,

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Speaker 3: and all that means it's just math that returns are

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Speaker 3: going to be lower over the next few years.

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Speaker 2: Well, I'm sure LP's investors who hear the idea that

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Speaker 2: they need to hold on for companies longer are not

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Speaker 2: going to be happy with that. They've been clamoring to

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Speaker 2: get their cash back. So how do they do both

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Speaker 2: at the same time?

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Speaker 1: They generally don't. They generally don't.

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Speaker 3: I think you're going to see sponsors looking for creative

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Speaker 3: ways to return capital, whether that's through structured equity investments

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Speaker 3: or other things into these portfolio companies. But eventually sponsors

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Speaker 3: are just going to have to accept the valuation environment

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Speaker 3: is lower and start selling companies.

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Speaker 2: So you're getting ready to buy some deals you're getting

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Speaker 2: ready to absolutely, are you hiring to match that?

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Speaker 3: No, we have a pretty robust we have you know,

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Speaker 3: several hundred people already here in Europe and feel like

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Speaker 3: we have a good footprint.

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Speaker 2: He okay, so you're ready, You're ready for the deals

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Speaker 2: of what they come. Absolutely, Look what kind of valuation

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Speaker 2: discounts do you think we're talking? How have doy could

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Speaker 2: they get?

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Speaker 1: Well?

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Speaker 3: I don't think it's so much discounts as it is.

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Speaker 3: The current environment is just you know, repriced. Uh you know, folks,

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Speaker 3: you know that that that you know when when deals

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Speaker 3: are purchased at a zero percent rate, that implied a

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Speaker 3: valuation environment of X at a five percent rate, you know,

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Speaker 3: risk free rate, you know that valuation environment is lower.

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Speaker 3: And whether marks reflect that or not tbd. But the

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Speaker 3: reality is it's coming.

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Speaker 2: And you know, one of the venues for exiting historically

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Speaker 2: is pretty much closed. It's been iced over. That is

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Speaker 2: I p O s. Unless you have maybe a really

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Speaker 2: robust company that you can ipo. It's a really hard environment.

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Speaker 2: But it's kind of counterintuitive because stocks at an all

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Speaker 2: time high, you think that the IPO market would be back.

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Speaker 2: So if it's not back now. Has something fundamentally changed absolute, Danny.

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Speaker 1: I think you're really onto something here.

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Speaker 3: The equity markets have fundamentally changed, right because of the

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Speaker 3: massive increase in indexation in passive market participants. The market

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Speaker 3: doesn't care about a three billion dollar IPO a five

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Speaker 3: billion dollar IPO, and that's forcing sponsors to also think about, well,

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Speaker 3: how do you exit? Right, because unless you're prepared to

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Speaker 3: just exit at a mediocre valuation in the equity markets,

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Speaker 3: you're going to need a different path, a different path

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Speaker 3: to exit. And I think that trend is only continuing.

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Speaker 3: I mean, look at the the US equity market. Ten

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Speaker 3: stocks represent a third of the S and P probably

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Speaker 3: two thirds of the gain over the last year. Right,

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Speaker 3: that's just indexation at work. It's just more and more

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Speaker 3: dollars flowing into the biggest stocks.

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Speaker 1: And that's tough. That's tough for small companies.

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Speaker 2: You sound a little bit like David Einhorn. He's also

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Speaker 2: said that fundamental companies can't get a break because of

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Speaker 2: just the price and sensitive buyers. So what is the

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Speaker 2: good option? You say, Other ways to exist, other ways

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Speaker 2: for liquidity. Take me out. You know, five ten years

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Speaker 2: from now, where the IPO market. We've decided that this

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Speaker 2: is no longer an option except for a few slim companies.

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Speaker 2: What are people doing instead?

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Speaker 1: Sure, but by the way, I'll answer that in a second.

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Speaker 3: But it's that very disconnect that actually makes public deprivate.

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Speaker 3: It's very interesting right now, Yes, the S and P

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Speaker 3: looks like it's hitting all time highs, but you have

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Speaker 3: a third of the companies in the SMP whose stock

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Speaker 3: is down here to date. Right, that's just not reported on.

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Speaker 3: That's not what people fundamentally know. But there's a lot

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Speaker 3: of interesting companies a reasonable valuations out there. To answer

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Speaker 3: your question, though, where do you go with this? You know,

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Speaker 3: this is all the more reason why purchase price matters. Right,

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Speaker 3: If you buy companies at reasonable valuations, you're not beholden

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Speaker 3: to premium valuations on an IPO in order to make

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Speaker 3: your returns. Right, you cancel the public you just may

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Speaker 3: not get that super premium valuation you thought. Or you're

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Speaker 3: selling to a strategic you're selling to another sponsor, you're recapping.

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Speaker 3: There's lots of ways to do it, but it can't

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Speaker 3: be dependent on well, I'm just going to get out

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Speaker 3: at a at a premium perfect valuation