- Tony Ressler owns 48.9 million common units
- Ares AUMs concentrated on credit, direct lending units
- Firm cuts size, price of IPO ahead of trading debut
Ressler owned 48.9 million common units, according to an amended prospectus for the deal. Based on Ares Management’s IPO price of $19 per unit, Ressler is holding about $929 million in shares.
In their first day of trading on May 2, Ares Management shares fell to close at $18.17, a decline of 4.4 percent from the IPO price. Ares cut the size of the offering to 11.4 million units from 18.2 million units, and the IPO priced below the estimated range of $21 to $23. The deal generated proceeds of $217 million and gave Ares a market cap of about $4 billion, or about 4.7x its 2013 net income of $850 million.
As the firm’s shares began trading under the symbol ARES, they joined those of its affiliate Ares Capital Corp, which as the nation’s largest business development company trades under the symbol ARCC.
Stephen J. Andriole, a professor at Villanova University’s School of Business, said Ares fared well in the deal despite its move to cut its IPO price and the size of the offering:
“The return numbers on these firms are impressive,” Andriole said. “The market is saying thumbs up on the model. They couldn’t have done it if the dividends and overall returns of KKR, Apollo and Blackstone hadn’t been strong.”
Overall, the public markets are providing another source of capital during a time when some fundraising efforts remain challenging at times.
“You raise a bunch of money, the principals make a ton of money and what’s interesting is that in spite of the ups and downs around private equity investing, the stocks have done really well in terms of returns for investors,” Andriole said. “So why not?”
Ressler, 53, chairman, CEO and co-founder of Ares, grew the firm from $5 billion of assets under management in 2003 to $74 billion of AUM at the end of 2013. He serves as senior partner of the firm’s Private Equity Group and serves as chairman of the management committee. In 1990, he a co-founded of Apollo with Leon Black and was a member of the original six-member management team. Ressler oversaw and led the capital markets activities of Apollo and Lion Advisors LP from 1990 until 1997, when Ares was founded.
“Growing over the next five or 10 years, we believe, is actually going to be easier than it has been over the last five or 10 years,” according to Ressler’s remarks in a video posted online with Ares’s pitch to potential shareholders, as reported by Bloomberg News. “We simply have far more to offer our investors. Going public is the natural next step for Ares.”
Much like Apollo, a big chunk of Ares’s assets under management are in the credit business. Out of its $74 billion in AUM, the firm holds $28 billion in tradable credit as its largest chunk, followed by $27 billion for direct lending, $10 billion for private equity and $9 billion in real estate investments.
While Ares managed to pull off a successful IPO, it’s joining a class of alternative investment stocks that trade at lower multiples than conventional asset managers.
Blackstone Group’s price-to-earnings ratio of 13.9 leads the crop of seven publicly listed U.S.-based private equity firms. It trails the P/E ratio of 17 for BlackRock, 23.7 for Legg Mason, and 14.2 for State Street.
“Traditional asset managers have a revenue and earnings structure that is more predictable,” said Gary Pinkus, senior partner, McKinsey & Co’s San Francisco office. “Your average investor is going to put a higher value on a more predictable earnings stream. It’s a guess, but an additional reason may be that many of these (PE firms) are quite complex businesses. There could be a complexity discount built into their valuations.”
Among the group, KKR has turned in the most gains since debuting shares. The firm’s stock trades up about 129 percent since its debut in 2010. The Carlyle Group’s stock has risen about 48 percent since its debut two years ago. The Blackstone Group has lost 5 percent since its IPO at $31 per unit June, 2007, but it’s up more than 4x from its lows in 2008.
John Fitzgibbon of IPOScoop said he gave the IPO one star rating out of a potential five stars. The rating predicted a flat opening, based on conversations with potential investors.
(This story has been updated to insert two words missing from a quote by Gary Pinkus.)