Great Private Equity Investments

What follows is one of the best examples of using leverage to make money in private equity. In 1982 a private equity firm purchased Gibson Greetings Cards Inc., which published greeting cards. The firm paid $80 million, but borrowed $79 million to make the acquisition. The transaction closed with only $1 million of equity invested, $660,000 of which was split between two of the partners of the firm.

The private equity firm took the company public in a stock offering that valued it at $290 million sixteen months later. The two partners realized a return of 200 times their invested capital, turning an initial investment of $330,000 into $65 million each.

This transaction instantly became legend, and is credited as one of the variables that convinced Steve Schwarzman to pursue a career in private equity.

Marc Rowan, co-founder of Apollo, has built one of the best private equity investments in Athene, an insurance company whose assets now exceed $100 billion. An article in The Financial Times questions the numerous ways in which Apollo has benefited from this investment and calls fees into question, but as a vehicle for profit, it’s difficult to argue with:

“Even its critics concede that from the standpoint of its creators, Athene has been perhaps the greatest investment strategy of the past decade. Apollo has created both a listed $10bn life insurance company as well as a perpetual stream of fees that account for several billion dollars of its own $13bn equity value.”