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Look up Apollo's bet on Lyondellbassell in 2008... they invested $2 billion into the debt of the company as it went into bankruptcy, converted to equity post-emergence and eventually wound up with $10 billion of profits for a 6x return. Ballsy as hell and really cemented them as the smartest PE investors in the room.
Wow that's beautiful. 6x on that much money is ridiculously good.
This was certainly one of the more lucrative plays in PE. However, I'd argue the absurd returns were really a function of luck rather than investing acumen.....
Apollo's strength was in the distressed debt markets where the senior guys (Harris, Black, Rowen) all had significant experience having worked for Mike Milken at Drexel. They viewed Lyondellbassell as a strong discount debt buy given the significant value of the hard assets on the company’s balance sheet (bunch of olefins plants). If the company had just emerged from bankruptcy and teetered along like most post-bankruptcy companies do, the returns would not have been nearly as dramatic.
However, the pioneering of hydraulic fracking and horizontal drilling technology that resulted in the shale gas boom in the late 2000's/early 2010's dramatically reduced Lyondellbassell's feedstock costs (given the strategic location of their plants) thus supercharging their profitability. Did Apollo predict a revolution in drilling and extraction technology? No, they did not. But they knew something about chemicals and knew something about distressed debt and got really fucking lucky.
Geez, that's insane.....
This only works if they exit to the public markets. No chance any PE firm or even strategic would fall for those gimmicks.
Riiiiiiight......
Keep telling yourself that
Back in school I'd buy a pack of gum and sell each individual piece at a premium. Returns used to be 7x, pure equity play, no leverage required.
Just imagine the returns if you would have levered up.
Didn't wanna cause a financial crisis, I'm responsible.
someone get kravis over here on the forbes list
Mitt Romney's Experian flip for 3x in under 2 months.
On the other side of things, I've told this story before but had a friend who had a PE case study a few years back on a consumer products company and said there was surely no big market opportunity for the company's main product, which he thought was way overpriced, and he absolutely would not invest. That company was Yeti.
This one is my fav too - the IPO press coverage was out of control: "20-man PE group makes 50X on its money! What happens next will shock you!"
Bumped into this thread and wanted to share an article I read recently:
https://www.forbes.com/sites/nathanvardi/2018/12/20/deal-master-debbane…
Well worth the read, but I would recommend reading the IRRs at the bottom, at the very least, if you are short on time.
Very interesting case as Anchorage Capital bought Dick Smith:
https://foragerfunds.com/news/dick-smith-is-the-greatest-private-equity…
TLDR: They used accounting tricks and market sentiment to turn 10m in 520m in just 2 years
Linked in the OP, dawg. :p
Charging LPs 2% management fees and 20% carry without a hurdle while underperforming the public market equivalent.
do not think many people really understand how prevalent this is - add on the fact that it's illiquid money and I just can't sometimes...
Don't forget monitoring fees, transaction fees, and "success" fees (which FYI don't require success). Toys-R-Us comes to mind: $300m+ in fees for running a company straight into the ground.
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