What’s Apollo Global Management LLC (NYSE:APO) Getting In Diamond Resorts International Inc (NYSE:DRII) Acquisition?


Apollo Global Management LLC (NYSE:APO) is buying Diamond Resorts International Inc (NYSE:DRII) for $30.25 a share, thus valuing the company at $2.2 billion. The offer per share is a 26% premium over the closing price of Diamond Resorts shares a day before the deal was made public.

Compared to just a few months ago, the offer is actually a 58% premium over the price at which shares of Diamond Resorts were changing hands on February 24 when the company said it was exploring strategic alternatives.

What’s Diamond Resorts bringing to Apollo?

Is the $2.2 billion price that Apollo is paying for Diamond Resorts justified? Apollo has recently been active in deal-making on the hospitality front. In Diamond Resorts, the company will be adding to its portfolio of hospitality assets more than 420 vacation destinations that are spread across 35 countries.

In 1Q2016, Diamond Resorts registered substantial revenue growth as the topline rose 18.4% to $233.8 million over the same quarter a year ago. The management attributed the revenue growth to strong sales at same store locations as well as impressive income from managed resorts. Net income in the latest quarter shot up 32.6% to $34.4 million. Diamond Resorts generated free cash flow of $25.2 million in 1Q.

Apollo didn’t provide estimates about the impact on its top and bottom line metrics that it expects to come from the acquisition. But considering the fact that Diamond Resorts is already a revenue and profit-generating business, it could have immediate or near-term positive impact on Apollo’s numbers.

Closing the deal

Apollo Global expects to close the acquisition of Diamond Resorts in the coming few months if it obtains the necessary regulatory clearance. But the company didn’t disclose whether it would use its cash balance or debt or a combination of the two to fund the acquisition. APO’s balance sheet reflected cash and equivalents of $582.5 million and long-term debt stood at $1.9 billion at the end of 1Q2016.

A string of acquisitions

Apollo Global recently completed the acquisition of specialty grocer Fresh Market Inc for $1.4 billion and is hoping to acquire Apollo Education Group Inc (NASDAQ:APOL), the owner of University of Phoenix, for $1.14 billion.