Apollo Adds To Its Cruise Line Armada

Target: Regent Seven Seas Cruises

Price: Undisclosed

Sponsor: Apollo Management

Seller: Carlson Co.

Financial Advisor: Sponsor: Lehman Brothers; Seller: Goldman Sachs

Apollo Management is the private equity king of cruises. With its latest buy—luxury cruise operator Regent Seven Seas Cruises—the LBO shop has now invested more than $1.3 billion in the industry across three deals. Florida-based Regent Seven Seas is to be merged with Oceana Cruises to form Prestige Cruise Holdings. NCL Corporation, the third cruise operator under Apollo’s umbrella, will remain separate.

Apollo paid nearly $1 billion for full ownership of Regent Seven Seas, according to two sources. The firm did not disclose the debt-to-equity ratio, but the structuring of Apollo’s previous cruise deals, coupled with the pullback in the credit markets, suggest a sizable equity check. The firm’s 50 percent stake in NCL Corporation, acquired earlier this year, required $1 billion in equity, Apollo’s largest single equity check. Likewise, Apollo bought a majority stake worth about $480 million in Oceana Cruises, with $325 million of that coming in equity.

“We’ve over-equitized because we think the businesses can generate attractive returns without financial engineering, giving us more ability to pursue growth,” said Apollo partner Steven Martinez. The cruise company deals are viewed as growth investments, he added.

No U.S.-based buyout firm has come close to competing with Apollo’s holdings on the open seas, and as its cruise line holdings expand, the firm’s grip tightens. At least two other sponsors were involved in the auction for the Regent Seven Seas, but “no one was prepared to pay what Apollo could,” a source close to the deal told Buyouts. The firm’s status as both a strategic and financial buyer gave it operational advantages like consolidating call centers and travel agents and the ability to move customers across its brands. These synergies weren’t available to the other bidders, allowing Apollo to outbid the competition, the source said.

Moreover, Carlson Co., Regent Seven Seas’s parent, also evaluated bidders as partners because Carlson will continue to license the Regent Seven Seas brand name, said Kim Olson, chief communications officer for Carlson. The company has set up a brand council with representatives from Apollo and Carlson to oversee the development of both Regent Hotels & Resorts and Regent Seven Seas.

Apollo first identified the cruise industry as attractive 18 months ago; Apollo has since gobbled up every asset they could. The firm is building an entity large enough to compete with the two publicly traded cruise operating giants, Royal Caribbean Cruises and the Carnival Corp. With market caps of $9 billion and $37 billion, respectively, the competition is nonetheless formidable. Apollo’s Martinez said the industry is “tough to crack,” since aside from the reigning duopoly, only a handful of mid-sized privately held players are left. Martinez wouldn’t elaborate on the firm’s potential for more cruise buys, but trade reports have pegged luxury player Silversea Cruises, based in Florida, as a potential target.

Still, growth is likely to come internally first. Indeed, Carlson sold Regent to infuse the company with growth capital as it embarks on a plan to build more boats. The decision to sell was likely made before the onset of the credit crunch in July, as rumors of the deal surfaced later that month.—E.G.