Apollo Shoots for the Stars with $3.6B Barnes Deal

You’re reading Value Add’s weekly briefing, the leading newsletter for the operating side of private equity. Here’s what you need to know this week, from insights for PE-backed executives and portco news to recent buyouts and investment trends. 

Insights

Chart of the Week: Private equity deal activity in the consumer sector is up 2.6% YTD through Q3 2024, the first positive growth for the sector since 2021. Many investors grew sour on CPG, retail, and media businesses over the past few years because of shrinking moats and their exposure to cyclical consumer spending. Value Add’s 2024 Consumer Sector Private Equity report has more insights on how PE firms are approaching these types of businesses. (Read More)

More Insights

• The Unexpected Impact of Family Offices on PE Portco Operations (Read)
• Are PE-Backed Companies More Likely To Go Bankrupt? It’s Complicated. (Read)
• Apollo: “You Can’t Talk in the ESG, Alphabet-Soup Jargon” to CFOs (Read)
• Exits Are More Sensitive to Interest Rates Than Buyouts (Read)
• History Shows Interest Rates Alone Have Marginal Impact on Buyout Activity (Read)

Spotlight

To infinity… Last week Apollo Global Management announced its intention to take Barnes Group, an industrial technology and aerospace manufacturer, private for $3.6 billion, or $47.50 per share, a 22% premium over the shares’ closing price of June 25, 2024.

The transaction is an all-cash transaction and is expected to close by the end of Q1 next year.

And beyond. Industrials have become ever-more attractive to PE investors, with the sector being the second-most popular for exits in 2023, according to our Private Equity Exits Report 2024, and accounting for 30% of deal activity in Europe for the same year, according to our Europe Private Equity Report 2024. 

The same level of popularity cannot be found in the aerospace and defense sector for private equity investments. According to Pitchbook, private equity investment in aerospace and defense peaked at $19.8 billion in 2021, dropping to a measly $7.4 billion in 2022.

This is despite the immense opportunity in the sector. Pitchbook notes that defense budgets are increasing due to the growing number of geopolitical conflicts worldwide, while KPMG explains that supply chain consolidation and technological innovations are two key verticals where private equity firms can find value in the sector. 

That isn’t to say that the industry isn’t without its challenges: regulatory compliance and contracting requirements, for example, are hurdles to entry – but they’re hurdles that haven’t impeded the slight comeback seen in dealmaking in the space in Q2 2024.

According to Reuters, the recent interest rate-induced financial turmoil experienced by companies in the industry makes now a perfect time for private equity firms to go on the offense. 

This could be why other blue-chip private equity firms have made moves in the space over the past few years: 

• Blackstone acquired MB Aerospace for an undisclosed amount in 2015. 
• KKR acquired Airbus’s defense electronics unit, Hensoldt, for €1.1 billion ($1.2 billion) in 2017.
• Advent International took Cobham private for £4 billion (then $5 billion) in 2020.
• The Carlyle Group bought AMCK Aviation’s $4 billion aircraft portfolio in 2022.

The Apollo Space Program. No, not the program that put men on the moon – rather, the array of aerospace industrial companies that Apollo Global Management has in its portfolio. Two other recent acquisitions for the firm include Arconic and Atlas Air Worldwide.

The former is an aerospace supplier based in Pittsburgh that Apollo took private last year. The deal totaled $5.2 billion (about $3 billion of which was equity) or $30 a share.

The latter, Atlas Air Worldwide, was taken private in 2023 by a consortium of investors including Apollo, JF Lehman, and Hill City Capital. The deal was valued at $3 billion or $102.50 per share. 

With both of these assets, Apollo’s value creation plan started with a take-private, much like the Barnes deal. However, the similarities end there. 

Apollo mobilized its capital towards plant and technology upgrades for Arconic and expanding international eCommerce customers for Atlas Air Worldwide. By contrast, Barnes will use Apollo funding to expand the amount of products it provides to its end customers, with Thomas J. Hook, CEO and president of the firm, stating in a press release that, “Under Apollo Funds ownership, we aim to accelerate our transformation, enhance our capabilities, broaden our product offerings and create new opportunities for growth and innovation.”

Apollo Global Management declined to comment on its value creation plan for Barnes.

Buyout News​​ 

After all that space talk, let’s come back down to earth. There were a couple of deals here, too, this past week. 

For example, Duckhorn, a premium wine company, has agreed to be taken private by Butterfly Equity in an all-cash transaction that values the company at $1.95 billion. Butterfly is paying $11.10 per share, a 65.3% premium over the 90-day trading average stock price.

Meanwhile, Vista Outdoor has split itself into two separate companies: an ammunition manufacturer and a sporting goods company. The former line of business will be sold to defense contractor Czechoslovak Group, while the latter unit, Revelyst, will become private equity fodder. Strategic Value Partners will buy the business for $1.1 billion. The deal is expected to close in January. 

And finally, it looks like CD&R has beaten out competitor PAI Partners for a 50% stake in Sanofi’s consumer health business, Opella. The transaction is reportedly in advanced talks and will garner a ticket price of about €15 billion ($16.4 billion) for the business segment.

Questions? Email us: editor@valueaddpe.com