Apollo’s Co-President Sees ‘Collective Delusion’ as Deal Valuations Soar

(Bloomberg) -- Apollo Global Management Inc. Co-President Scott Kleinman said record-low interest rates are causing a “collective delusion” on deal valuations. 

Near-zero interest rates are having “a whole variety of unintended consequences” and are causing valuation multiples to rise “incredibly dramatically,” Kleinman said in an on-stage discussion Wednesday with Bloomberg News’s Jan-Henrik Foerster at the SuperReturn conference in Berlin. 

“We are all in a state of collective delusion here,” Kleinman said. “We will look back in 20 years from now and say, ‘What were we all thinking? How is this really feasible that a buyout can happen at 25 times Ebitda?’”

Apollo is trying to take a value-oriented approach and has been able to deploy capital in “great companies” at valuations of five to nine times earnings before interest, taxes, depreciation and amortization, he said. 

High-growth firms like technology companies are “very dependent” on the prevailing interest rate environment, and valuations fell 20% to 25% in a matter of days when rates rose earlier this year, according to Kleinman. 

“A rise in rates will have a massive effect on valuations that people are paying for companies,” he said.

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