Apollo's Sambur: AI Makes Valuing Software Firms Harder

Apollo Private Equity co-head David Sambur says dealmaking is persisting despite uncertainty around the Iran war. He notes markets prefer calm and certainty but that "fortunes are made in volatility," suggesting PE firms are continuing to pursue opportunities created by geopolitical-driven dislocation. Expect sustained selective deal activity in private markets with limited immediate impact on public markets.

Analysis

Large, scale-capital allocators and credit originators are the implicit winners from a market that keeps doing deals in the teeth of geopolitical noise: they convert dry powder into fee-bearing AUM and capture spread pick-up on leveraged financings. Expect to see acceleration in GP-leds, continuation vehicles and sponsor-to-sponsor transactions over the next 6–18 months as managers monetize winners and recycle capital — that increases demand for senior-secured paper and CLO inventory by an incremental $20–50bn in a typical cycle.

Second-order effects favor counterparties that control distribution and underwriting — placement agents, loan arrangers and restructuring boutiques — while pressuring margin-sensitive buyers (small strategics, weaker PE firms) who must bid up prices to win auctions. That dynamic compresses future IRRs: every 100bp of higher purchase price on a 3x entry multiple eats ~3–5 percentage points of annualized return over a 5–7 year hold.

Tail risks are asymmetric and time-staggered: near-term headlines (days–weeks) can pause processes and widen financing spreads; medium term (3–12 months) a sudden tightening of bank liquidity or a rate shock could blow out bridge financing costs and force deal postponements; long-term (2–5 years) an extended exit-window of low IPO/M&A appetite will crystallize valuation impairments. A quick ceasefire or a meaningful drop in rates would reverse financing stress and re-accelerate exits, compressing public/ private value gaps rapidly.

Key Decisions for Investors

• Long KKR (KKR) equity, 6–12 month horizon: size 2–4% notional. Rationale: secular fee growth + buyout origination optionality. Hedge: buy 6–9 month 10% OTM puts at ~2–3% cost. Target: +20–30% upside if deal activity sustains; downside: -30–40% in a systemic risk-off.
• Long Ares Capital (ARCC) or similar BDCs, 12 month: capture current yield and spread normalization vs direct lending. Size 3–5% with tight credit-monitoring. Target total return 8–15% if default rates remain benign; risk: >20% drawdown if corporate defaults spike and asset markdowns occur.
• Relative trade — long Blackstone (BX) / short HYG (iShares High Yield ETF), 3–9 months: expresses alpha of fee-bearing asset managers vs pure credit beta. Size net market exposure 1–2% with stop-loss on BX at -20% and hedge using short-dated puts on HYG. Expect 1500–2500bp relative outperformance if fees and CLO warehouses expand; risk of compression if high-yield rally squeezes credit spreads.
• Tactical defensive: buy protection on regional bank stress via short KRE (SPDR Regional Bank ETF) or buy 3–6 month puts, 1–2% notional. Rationale: smaller lenders underwriting leveraged buyouts and bridge loans are most exposed to repricing risk. Reward: asymmetric if a refinancing cliff appears; risk: local containment or central bank backstops can quickly erase gains.