Last April marked the end of my second year as an associate in Apollo’s Private Equity (“PE”) group. This was both a significant milestone and a natural point to reflect on the first half of my associate experience. With that goal in mind, I have summarized some of my experiences and what the Apollo associate experience consists of, more broadly.
Some of you may be wondering why I am not pursuing business school as most other PE associates would at this juncture. Apollo is unique in that there is no ‘business school’ culture for associates; we are expected, encouraged rather, to ‘grow-up’ at Apollo by working our way through the four associate years until principal – and then until partner. Along the way, we are trained to develop an ‘ownership mentality’, which translates into a higher level of understanding in the various nuances of each investment, both in the initial underwriting and on-going portfolio company maintenance. This career-development oriented nuance of the associate experience is further accentuated by Apollo’s generalist program (i.e. no industry specialization as an associate) and lean deal team model – three members to a team: a partner, a principal, and an associate. The combination of all these factors can drive a strenuous life-style at times, but also rewards us with vast industry exposure, core competencies in investment underwriting, and high levels of responsibility in the formative years of our careers. I think all of these factors create a developmental experience that is rivaled by few other firms.
My experience has spanned the gamut across traditional private equity, structured debt & equity investments and FIG (primarily insurance). In my opinion, this has resulted in an all-encompassing learning experience that has exceeded my expectations and has arguably been more rewarding, from a learning perspective, than that of most of my peers that joined the private equity industry from my Goldman Sachs analyst class. The next phase of my Apollo journey is about to begin as I head over to the Hong Kong office for 6 months – this will give me an opportunity to further expand my associate tool-kit and experience the global markets first-hand. While each associate’s experience varies, the core structure of the Apollo experience remains the same and is described below at a high level:
A) Investment Process for New Deals
Private equity is an investment business at its core and associates are very involved in the investment process for new deals:
i) Sourcing: This differs greatly at each firm, but sourcing at Apollo generally resides with partners and senior principals who are responsible for building and maintaining a pipeline of opportunities. Various channels for building a pipeline include personal networks, investment bankers, consultants, and industry contacts. While associates are not directly responsible for sourcing, we are encouraged to actively participate in the process.
One of the most rewarding aspects of the job is the level of access that is available to us. Late last year, a rising partner and I began a concentrated effort to establish coverage of a new industry. Our goal was simple: learn as much as possible and as quickly as we could about the industry in order to (i) build industry relationships; (ii) develop a deal pipeline; and (iii) deploy capital. Our approach for getting up to speed was incredibly hands-on and more reliant on experts than I had anticipated. We met with the heads of various investment banking groups and highly seasoned consultants to facilitate a two-month transfer of knowledge from subject matter experts with decades of experience. Naturally, this led to introductions to operating executives at the industry’s leading companies that may be looking to transact and retired executives that may able to assist us in the evaluation of a potential transaction at the appropriate time. While we do not profess to be industry experts just yet, we now have a strong grasp of the industry dynamics, relationships with key industry participants and a healthy pipeline of opportunities that we are constantly analyzing. We are confident that this approach will soon lead to the next stage of the investment process.
(ii) Investment Analysis / Underwriting: Once our sourcing efforts begin to bear fruit, we move to evaluating potential opportunities and deal underwriting. Given our lean deal team model, it is imperative for us to have a nimble approach for allocating resources and quickly identifying the deals that we think are most actionable. Over the years, the broader team has pioneered an approach for rapidly identifying whether a given investment would fit into the Apollo funnel (i.e. value-oriented, opportunistic, and down-side protected investments). Three of the most prevalent tools in the associate toolkit for identifying the prospects of an investment in the early stages are:
– ‘One Pager’: slightly inconsistent with the name, this document can range from one page to several pages that provide the team with key information on a company including detailed business and segment overviews, historical financial performance, trading and valuation over time, shareholder ownership, capital structure overview and recent company news
– Analysis at Various Prices (“AVP”): prior to running any buy-out math, the AVP is used to screen what a potential purchase of the company would look like in terms of valuation multiples (both pre- and post- cost-savings / synergies). This helps the deal team come up with a fully-synergized range that we would be willing to pay for the company, while remaining within our investment parameters. The AVP is often the gate-keeper before we fully commit to a process and expend resources on the detailed due-diligence process, a thorough evaluation of a potential investment
– LBO Model: following the one pager and AVP screens, we typically move to the LBO model. The ‘simple LBO’ model is based on high level projections, likely provided by management in the CIM (i.e. management presentation). While the simple LBO is usually enough for the initial stage, these models tend to get extremely detailed and complex once diligence kicks off fully. The LBO model is a helpful tool in triangulating the expected returns on an investment across a handful of scenarios. Once the team has enough conviction in a potential investment, the associate is responsible for taking lead on preparing a posting deck that will be used to socialize the potential opportunity internally. This is typically a comprehensive document that provides significant detail on the company and investment thesis. The goal is to solicit feedback from the founders and non-deal team partners on the transaction early on, while also identifying any potential risks that the deal team may not be focused on.
After completion of the due diligence process and prior to submission of the final bid, the team (with associates bearing the brunt of content creation) prepares an ‘Investment Committee “IC” Memo’, which is a comprehensive summary of ALL the diligence efforts and final investment thesis. IC is generally held on a weekly basis and all private equity investment professionals are encouraged to attend. For most of us, IC is one of the most interesting and rewarding aspects of the job. It gives us an opportunity to learn about various industries and gain insight into the minds of some of the most successful private equity investors, including those of the pioneering founders who are very involved. Occasionally, and admittedly more entertaining, we see some active, yet constructive, dialogue when partners have contrasting views on a potential investment.
Outside of the core underwriting, there are other fascinating nuances of the process that include deal negotiations, financing processes, contract drafting, managing external advisors, and counterparty interactions. The Apollo associate’s heightened level of responsibility becomes very evident in these ancillary parts of the investment process. For example, in my first year at Apollo, I found myself negotiating key terms of an investment management agreement, with occasional input from senior deal team members; my counterpart was an investment manager with 25 years of experience.
B) Portfolio Company Monitoring
- While the investment process is critical, it is only the beginning of a long and arduous journey of an investment. Unlike in banking, where the team’s involvement ends at deal announcement, the private equity deal team’s engagement with a company and its management team increases once an investment is consummated. Then starts the path to execute on all the initiatives laid out in the investment memo to achieve the expected returns. The associate is typically responsible for one to three portfolio companies at any given point. Level of involvement varies based on the unique characteristics of each company, but all associates are expected to be fully ‘plugged in’ and actively thinking about our funds’ portfolio companies. Various factors that determine the involvement include a) type of transaction; b) size and life-cycle of the investment; c) management teams’ capabilities; and d) financial and operational performance.
- For example, one of the portfolio companies that I work on was formed through a corporate carve-out from a much larger parent company. While the management team and employees are very competent, the newly formed company is going through a stand-up and separation period, which is fundamentally different than being part of a larger entity. Thus, the company does not yet have all the necessary tools to operate on a fully standalone basis. Going through this transition with the company has been an incredible learning experience and an opportunity to develop a holistic view of an organization by learning about all its inner workings. I am actively contributing to and collaborating with workstreams across all functions including finance, tax, risk, operations, human resources, technology, corporate development & strategy, legal, and compliance. This level of responsibility and collaboration has led to a unique bond with the portfolio company’s CEO, which is a rewarding aspect of the associate experience.
C) Internal Initiatives & Closing
Outside of the typical duties of a PE associate, we are also encouraged to participate in various firmwide initiatives:
- Recruiting – associates are very involved in the recruiting process and help interview potential candidates
- Internal Committees – there are various initiatives going on across the firm and associates are expected to actively participate. For instance, I currently sit on the PE Tech Operating committee, which focuses on bridging the gap between the traditional world of finance and the highly innovative world of technology
- Fundraising – senior associates participate in interactions with LPs as part of fundraising for new funds
- Portfolio Review – twice a year, each deal team prepares a presentation on their investment that is shared and reviewed with the whole group
- Annual PE Strategy Session – once a year, the whole PE team comes together for a planning session and team-building experience
Put simply, the role of a private equity associate at Apollo is to take as much as possible off the principals’ and partners’ plates, while equipping them with the key information required to make critical decisions effectively. In exchange, you are rewarded with an incredible learning experience and as much responsibility as you can handle in your formative years as an investor.