In one of the largest financial industry spinoffs of the year, annuities and other related financial instruments provider Athene Holding is going public via an IPO. The company is majority-owned by private equity powerhouse Apollo Global Management (NYSE:APO), which intimated several times previously that it would float Athene Holding in an IPO. That day is almost upon us; here's a brief look at the company.
Athene Holding is a large company, but its core business is straightforward -- it enters into annuities contracts with its clients, using those deposits to invest in assets that provide a higher return than what it's paying out.
It's a good business to be in, and Athene Holding has managed to operate it profitably for years. Its annual bottom line has been in the black since 2012. This year has been a strong one for the company; in the first three quarters of 2016 it managed to nearly double net revenue (to just over $3 billion), while improving available net income by a chunky 37% to $437 million.
Strategic acquisitions have helped Athene Holding grow to its present size (roughly $87 billion in assets). In late 2012 it struck a deal to acquire Aviva USA, an arm of big UK-based insurer Aviva, for 1.1 billion pounds (roughly $1.8 billion at the time) -- around one-third of the unit's total book value.
Although Athene Holding remains focused on the domestic market, it's made its presence known overseas. Last year, it bought German life insurance provider Delta Lloyd Deutschland, a unit of the eponymous Dutch multinational insurer.
Following the IPO, Athene Holding will still be tightly linked to Apollo Global Management and its affiliates, who will collectively own around 45% of the shareholder voting rights in the company.
In Apollo's most recently reported quarter, it disclosed that it "managed or advised" nearly $72 billion of Athene Holding's assets under management (at the end of September, total AUM for the latter stood at $188 billion). Additionally, said the parent, "$15.3 billion, or 21%, was either sub-advised by Apollo or invested in funds and investment vehicles managed by Apollo." We can imagine that this close relationship will continue.
A taste for risk
Relative to its peers, Athene Holding tends to plow its deposit money into higher-risk investments such as subprime real estate assets. That, plus its level of specialization, means typically higher net profit margins than that of the company's rivals, which for the most part are more diversified insurers such as MetLife and Lincoln National.
In terms of price to book value, Athene Holding will be more expensive than its two peers. If it's priced at the very bottom end of its expected IPO price range at $38, the company's price/book will be exactly 1. By comparison, MetLife currently trades at a price/book just under 0.8, while Lincoln Financial's ratio is a bit over 0.9.
That seems to be a fairly good deal, given Athene Holding's higher margins. Some might be concerned that the tight link with Apollo mainly helps the larger company, but in my opinion it's more benefit than burden; Apollo is a sharp operator that can find offbeat and lucrative investments for its partner. Anyone interested in putting some money on the new company, however, should monitor that relationship going forward.
A total of 23.75 million shares of Athene Holding are to be sold in the company's IPO, by a group of selling shareholders (mainly Apollo and its affiliates). The company will receive no proceeds from the sale.
The stock, which is scheduled to start trading Friday on the New York Stock Exchange, will bear the ticker symbol ATH. The IPO price is $38 to $42 per share.
The issue's big underwriting syndicate reads like a who's who of American investment banks. It includes Goldman Sachs, Citigroup, Wells Fargo Securities, and Bank of America Merrill Lynch.