IPO Report: Ares Management, LP (ARES)

Francis Gaskins |

Ares Management, LP ($ARES) is a leading global alternative asset managerheadquartered in Los Angeles, CA.

Three other companies are scheduled for the week of April 28, 2014.  The complete  IPO calendar is available at IPOpremium.

The manager and joint managers are J.P. Morgan, BofA Merrill Lynch, Goldman Sachs, Morgan Stanley, Wells Fargo Securities, Barclays, Citi, Credit Suisse, Deutsche Bank, RBC Capital, UBS Investment Bank

The co-managers are BMO Capital Markets, Keefe Bruyette Woods, SunTrust Robinson Humphrey, Imperial Capital Co, Mitsubishi UFJ Securities Co, and SMBC Nikko.

ARES scheduled a $400 million IPO on the NYSE with a market capitalization of $4.65 billion at a price range midpoint of $22 for Friday, May 2, 2014.  SEC filings

Overview

ARES is a leading global alternative asset manager with approximately $74 billion of assets under management and approximately 700 employees in over 15 offices in the United States, Europe and Asia.

Revenue plus other income was down -17% in2013 vs 2012.  Net income was down -34%.

37% of IPO proceeds are going to a selling unit holder. 

The target distribution of 80% of distributable income would generate a yield of 3.36% of the price range  mid-point of $22, based on 2013 results.

Valuation

Glossary

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

 

Cap (mm)

Rev

Erngs

BkVlue

TanBV

in IPO

Ares Management, L.P. (ARES)

$4,651

2.8

5.9

n/a

6.7

9%

             

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

Dividend

 

Cap (mm)

Rev

Erngs*

BkVlue

TanBV

Yield

     

*before minority interests

     

ranked by price-to-revenue

       

Apollo Global Mgt (APO)

$4,420

1.2

1.9

1.7

1.7

2.0%

Ares Management, L.P. (ARES)

$4,651

2.8

5.9

n/a

6.7

3.4%

Och-Ziff Capital Management Group LLC (OZM)

$6,180

3.3

4.9

-46.1

-46.1

13.6%

Fortress Investment Group LLC (FIG)

$3,120

5.5

9.8

3.8

3.8

4.4%

KKR & Co. L.P (KKR)

$6,810

8.9

0.9

2.5

2.5

5.9%

The recent stock charts for APO, OZM, FIG & KKR have been  mixed.

Conclusion

The rating on ARES is neutral.

Business

ARES is a leading global alternative asset manager with approximately $74 billion of assets under management and approximately 700 employees in over 15 offices in the United States, Europe, and Asia.

ARES provides a range of investment strategies and seeks to deliver attractive performance to a growing investor base that includes over 500 direct institutional relationships and a significant retail investor base across its publicly traded and sub-advised funds.

Over the past ten years, ARES’s assets under management and total management fees, which comprise a significant portion of its total fee revenue, have achieved compound annual growth rates of 31% and 33%, respectively.

Since its inception in 1997, ARES has adhered to a disciplined investment philosophy that focuses on delivering strong risk-adjusted investment returns throughout market cycles.

ARES has created value for its stakeholders not only through its investment performance but also by expanding its product offering, enhancing its distribution channels, increasing its global presence, investing in its non-investment functions, securing strategic partnerships, and completing accretive acquisitions and portfolio purchases.

For the year ended December 31, 2013, ARES generated total management fees of $517 million and economic net income of $329 million on a Stand Alone basis.

ARES’s revenues are diversified, with more than 140 active investment funds under management, and stable, with approximately 84% of total fee revenue for the year ended December 31, 2013 derived from management fees (including 18% attributable to ARCC Part I Fees).

In addition, as of December 31, 2013, approximately 58% of ARES’s assets under management were in funds with a contractual life of seven years or more, including 15% that was in its permanent capital vehicles with unlimited duration.

ARES believes each of its four distinct but complementary investment groups is a market leader based on assets under management and investment performance and has compelling long-term business prospects.

Each investment group has demonstrated a consistently strong investment track record, and ARES believes each is viewed as a top-tier manager by a loyal, high quality investor base.

Dividend Policy

ARES expects to distribute to its common unitholders on a quarterly basis substantially all of Ares Management, L.P.'s share of distributable earnings, net of applicable corporate taxes and amounts payable under the tax receivable agreement, in excess of amounts determined by its general partner to be necessary or appropriate to provide for the conduct of its businesses, to make appropriate investments in its businesses and its funds, to comply with applicable law, any of its debt instruments or other agreements or to provide for future distributions to its common unitholders for any ensuing quarter, subject to a base quarterly distribution target range of 80% to 90% of distributable earnings.

ARES expects that its first quarterly distribution will be paid in the third quarter of 2014 in respect of the prior quarter. If ARES distributes 80% of distributable income the annual yield at the price range mid-point of $22 would be 3.36%.

Competition

ARES expects to face competition in its trading, acquisitions and other investment activities primarily from other private equity, credit and real estate funds, specialized funds, hedge fund sponsors, other financial institutions, corporate buyers and other parties.

Pre-IPO 5% unit holders

AREC Holdings: 50%

Michael J Arougheti   5.22 % 

David B. Kaplan    5.22 %

Antony P. Ressler   24.45%

Bennett Rosenthal 5.22 %

Use of proceeds

37% of IPO proceeds are going to a selling unitholder. ARES expects to net $237 million from its IPO. Proceeds are allocated as follows:

to purchase newly issued Ares Operating Group Units substantially currently with the consummation of this offering, to partially repay outstanding borrowings under the Credit Facility and for general corporate purposes and to fund growth initiatives. The Ares Operating Group will also bear or reimburse Ares Management, L.P. for all of the expenses of this offering, which ARES estimates will be $25.3 million.

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
ARES Ares Management L.P. representing Limited Partner 16.80 -0.25 -1.47 22,655
BDVSF Bidvest Group Ltd Ord 11.09 -0.14 -1.25 515

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