Tech Data buyer Apollo Global Management bets on companies

Private equity firms like Apollo create wealth for pension funds, financial institutions and individual investors by buying assets that typically are sold later at a profit.
Apollo Global Management has offered $130 per share for Tech Data's stock in an acquisition worth $5.4 billion. If regulators shareholders approve, the home-grown company will remain based in Pinellas County, where it employs 2,000 of its 14,000 workers. DIRK SHADD  |  Tampa Bay Times
Apollo Global Management has offered $130 per share for Tech Data's stock in an acquisition worth $5.4 billion. If regulators shareholders approve, the home-grown company will remain based in Pinellas County, where it employs 2,000 of its 14,000 workers. DIRK SHADD | Tampa Bay Times
Published November 14
Updated November 14

Big bets are the heart of the business for Apollo Global Management, the huge private equity firm that wants to buy Tampa Bay’s own Tech Data for $5.4 billion.

Buying a company, however, is typically only one step. Later, a sale is likely.

“Private equity firms, by their nature, do not usually make acquisitions in order to hold them forever,” said Keith Housum, an analyst who follows Tech Data for Northcoast Research.

RELATED: Private equity giant to buy Tech Data for $5.4 billion

In its 29 years, Apollo has invested in more than 300 companies, and the Wall Street Journal says the firm is “known for its willingness to make aggressive, sometimes contrarian, bets.” Its $325 billion portfolio has included everything from Chuck E. Cheese and Norwegian Cruise Lines to the Fresh Market and ADT home security.

Typically, a private equity firm will create a specific fund — say, with $20 billion raised from investors — to make acquisitions. Eventually, investors want a return on their capital, so it sells the fund or pieces of its portfolio. A particular asset can go from bought to sold in two to seven years.

Apollo, which did not comment for this story, plans to take Tech Data private, meaning its shares would no longer be traded on the stock market. After that, there are several paths.

Apollo could try to grow company value through more acquisitions like Tech Data’s own $2.6 billion acquisition of Avnet’s Technology Solutions group in 2017. Or it could expand Tech Data’s lines of products and support services. Or it could invest to make Tech Data a bigger player in areas such as cloud computing.

Tech Data has told employees Apollo takes a patient, value-oriented approach, so it expects to be able to invest in strategies that pay off over time.

“They are very willing to put those resources to work with those who present good business plans,” Tech Data CEO Rich Hume said at a staff meeting Wednesday.

RELATED: What’s it like to sell a company for $5.4 billion? 10 questions with Tech Data’s Rich Hume

A darker possibility is Apollo could try to increase Tech Data’s profitability by slashing areas such as R&D or investments in new products. But Housum said Tech Data is already lean, so “there’s not a lot of costs to cut.”

When a private equity firm sells a company, it can be to another private buyer. Or the company can go public again — “a real possibility,” Hume said.

“To be very transparent and clear, we are uncertain as to what Apollo’s specific plans are, but typically what happens is private equity firms work to build a bigger, better business overall,” Hume said. “Then, through time, they potentially take those companies back into the public market.”

Yet another possibility is another buyer makes a better offer. Under its agreement with Apollo, Tech Data has until Dec. 9 to entertain other offers. With its stock trading at $130.55 a share Thursday, investors might be betting on Tech Data getting more than the $130 a share Apollo has offered.

Housum said he didn’t see that as likely, but $130 did strike him as a low value, so he “wouldn’t be shocked if it occurred.”

Times senior news researcher Caryn Baird contributed to this report.

Apollo Global Management at a glance

Headquarters: New York. 1,300 employees. Offices in Los Angeles, San Diego, Houston, Bethesda, Md., London, Frankfurt, Madrid, Luxembourg, Mumbai, Delhi, Singapore, Hong Kong, Shanghai and Tokyo.

Founded: 1990.

The business: Apollo manages capital for hundreds of investors, including pension funds, sovereign wealth funds, financial institutions, wealthy individuals, university endowments, and charitable foundations. About two-thirds of its investors are in the United States.

Assets: $325 billion

Annual revenue: $1.9 billion

CEO: Leon Black, the firm’s founder and chairman. He’s a former managing director at Drexel Burnham Lambert.

Advertisement