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Ares Management to Take New Fund Public

The L.A. private equity firm, the latest to take advantage of demand for IPOs, files to raise $450 million.

April 22, 2004|Debora Vrana | Times Staff Writer

The Los Angeles private equity firm that owns lingerie marketer Maidenform Inc. and a major stake in luggage maker Samsonite Corp. said Wednesday that it planned to raise $450 million in an initial public offering.

Ares Management is the latest private investment firm to show an interest in tapping the stock market. Within the last month, more than a dozen such firms have filed for IPOs, according to Thomson Financial, a New Jersey data firm. Just last week, Kohlberg Kravis Roberts & Co., a specialist in management buyouts since 1976, filed to raise $1.6 billion.

Private equity firms are typically low-profile outfits that cater to wealthy individuals and large pension and institutional funds. By creating publicly traded investment funds -- as Ares Management plans to do with what it has dubbed Ares Capital Corp. -- they can get the benefits of tapping into a larger pool of investors, instead of relying only on the elite groups that have been their traditional base.

Richard J. Peterson, chief market strategist at Thomson, warned that these IPOs "are high-risk offerings, ill-suited to investors with a low tolerance for risk."

But earlier this month, Apollo Management, a $10-billion fund founded by financier Leon Black, raised $930 million in an IPO in such demand that the number of shares offered had to be increased.

"It's an industry trend right now," said Brad Freeman, a partner with Freeman Spogli & Co., a Los Angeles private equity firm that in March closed a new $1-billion private fund. "It's just another way to raise money from investors."

Some investors in Ares questioned whether the firm would be able to give enough attention to its existing $750-million fund, which was raised privately from institutional investors last month, if it had a publicly traded fund to attend to as well.

"It can cut both ways," said Robert C. Gay, managing partner with Bain Capital, a $17-billion private equity firm in Boston, which invested in Ares' $750-million fund. "The public fund can give them a potential competitive advantage, but it could divert their time away from their ability to reinvest the fund they just raised," especially if Ares doesn't hire additional staff.

Ares executives said they couldn't comment because of the so-called quiet period imposed by the Securities and Exchange Commission before such deals close. Ares eventually plans to hire more people to help manage the public fund, the filing with the SEC said. The firm didn't set a date for the IPO.

With $4.6 billion under management, Ares has 67 employees who work out of a Century City high-rise.

Founded seven years ago by former financiers of now-defunct Drexel Burnham Lambert, Ares said it would use the proceeds from the IPO to buy debt from mostly privately held mid-sized companies, according to the SEC filing. Some equity stakes in mid-sized firms are also possible, according to the filing.

Known mostly as a high-yield-bond management firm until it raised its private equity fund last year, Ares lately has pursued a string of high-profile deals. This year, it invested $30 million of the $110 million that went into the recapitalization of the House of Blues, the privately held nightclub chain that will use the financing to open new venues.

Several weeks ago, Ares and investment partners spent about $200 million to acquire Maidenform, the closely held lingerie company based in New York. Last summer, Ares helped lead a recapitalization of luggage company Samsonite and wound up with a 65.1% ownership stake.

Ares managers "are savvy investors with a strong track record," said Jim Leech, senior vice president of merchant banking at Ontario Teachers' Pension Plan, a $75-billion fund, which has invested and committed about $100 million with Ares.

The firm is named after a Greek god of war most often depicted carrying a bloody spear. Ares' top management -- Antony Ressler, 43, John Kissick, 62, and Bennett Rosenthal, 40 -- found the name fitting, since two of them made names for themselves nearly a decade ago at Apollo Management, another investment firm with a mythological moniker.

Ares Capital would trade under the symbol ARCC on the Nasdaq market. Merrill Lynch would underwrite the IPO.

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