Apollo's Kleinman on KDP Investment, PE Market and AI

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This deal from Keurig Dr. Pepper, they first announced that they were going to do this back in August, but it was only yesterday that we learned of yours and KKR's involvement. What was the genesis of this deal?

Host

Scott Kleinman

Yeah, well, look, the transaction itself, I think, has been well articulated, makes a lot of sense bringing these companies together. Our involvement really stemmed from the need for the company to find creative ways to bring its leverage down. And we came up with some very creative and thoughtful ways to make investments in the business but also do it in creative ways that really only private capital can solve.

I wonder about secondaries. It was initially, you know, when we started talking about it in financial media, we were skeptical. But now we've seen huge fundraises and secondaries. Investors clearly want access. Was that a big part of this funding, this financing as well?

Host

Scott Kleinman

No, not really. This really comes from a lot of our balance sheet capital, a lot of our hybrid capital that just is looking for interesting ways to make investments, but in a safer, more downside protected way.

It was indigestion in this industry, as we heard from David Solomon and clearly just alone in the action Apollo is doing, things have picked up. I remember in the summer of 2024, you stood up on a stage in Berlin until everybody: I'm here to tell you that not everything is going to be right, at least until the pig made its way through the python. I think that is one of the best statements about the industry that's ever been made. Where are we now? Has the pig made its way through the python?

Host

Scott Kleinman

Well, thank you for that. It's nice to be right once in a while. No, I'd say the pig is sort of somewhere like passing through the small intestine or something like that. No, the reality is, as we said back then, that the low rate environment for a decade allowed the private equity industry to acquire some really good companies but at pretty full prices. And when you saw a fundamental rate environment change, all of a sudden those good companies are still good companies but they were purchased at prices that don't make sense anymore. And so it was just going to take a while for companies to grow into those valuations longer than I think was underwritten. And that's exactly what's happening. And so we do believe, you know, the thing I said at the time also was that we're going to be in a higher for longer rate environment. I think there was a lot of optimism that rates would come down pretty quickly. Rates are starting to soften but still we believe the rate environment is going to stay higher for longer. And that's going to then keep the prevailing valuation environment intact. And so yeah, I think you're going to watch private equity sponsors sell assets but at a slower pace for the next few years.

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