- Silver Lake Partners is a private-equity firm known for doing leveraged buyouts of tech giants like Dell Technologies and Skype.
- But this year, the firm has done at least seven deals in which it’s taken a minority stake. Altogether it has invested in deals worth a combined $7.3 billion.
- The big question across Wall Street is whether the deals represent a change in strategy for the investment firm, or just a reflection of the environment in which it’s operating.
- Silver Lake is run by Egon Durban and Greg Mondre, named as co-CEOs in a December management shuffle. Ken Hao serves as chairman.
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Private-equity firm Silver Lake is best known for doing leveraged buyouts of big-name, mature technology companies. Think Dell Technologies, Skype, or Broadcom.
That was the reputation even heading into January of this year. Then, the company quickly peeled off a flurry of minority investments, starting with the enigmatic life-science company Verily Life Sciences.
In March, as the coronavirus pandemic gathered steam in the US, the company plowed money into Google’s self-driving car unit Waymo and Twitter. In April and May it followed with investments in Airbnb, Expedia, and India broadband startup Reliance Jio. Its latest investment was in a blank-check company just this week.
Just this year, the company has invested alone or alongside partners in $7.3 billion worth of deals. But despite its big-name moves, the firm is something of a cipher to outsiders. And even industry insiders describe the firm as “media shy.”
The flurry of activity reestablished Silver Lake as a preeminent private-equity fund for the technology industry after several years in which competitors Vista Equity Partners and Thoma Bravo stole attention with big deals as valuations climbed.
One banker who is familiar with their deals and friendly with some of the execs sums up the recent activity: “they view it very much as their reemergence.”
But the big question across Wall Street and Silicon Valley now is — what exactly is Silver Lake up to? It’s not necessarily a change in strategy, some say, but a reflection of how the private-equity landscape itself has transformed. Others see it as a more fundamental departure from what had long been Silver Lake’s bread and butter.
Instead of focusing solely on pure technology investments like software companies and video conference platforms, it’s now backing companies that span media, entertainment, sports and travel.
And while Silver Lake has long been comfortable doing minority investments, some insiders say its spate of 2020 dealmaking has taken “non-control” deals to a whole new level.
In Jio, for instance, it bought a 1.15% stake.
“It’s very, very typical of large financial institutions who kind of exhaust the playbook within the sector they’re in, and then they look for other sectors,” said Mark Leslie, a management lecturer at Stanford’s Graduate School of Business, when asked to comment on the 2020 deals some view as a departure from Silver Lake’s core focus. “They call it strategy drift.”
Leslie, who was once an investor in Silver Lake after he worked with the firm in a $20 billion deal when he was CEO of Veritas Softare, also said Silver Lake’s deal appetite is likely the product of the turbulent environment.
“There’s an old saying about investing, which is, buy on gunfire and sell on trumpets,” he said. “Now is a good time to buy.”
Silver Lake is currently in the midst of trying to raise a $16 billion fund, according to a Reuters report in April. And their string of recent deals has many in Wall Street curious to see what they’ll spend on next.
A Silver Lake spokesman declined to comment for this story.
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‘These investments are different’
Business Insider spoke with more than a dozen bankers, lawyers, competitors, and deal partners to understand Silver Lake’s strategy. Many said it was too early to judge the recent investments.
“You look at some of their huge wins: Broadcom or Dell or Skype,” said one of the people. “They were super hands-on. They were on the board and crafting the strategy, and they were super creative financially. These investments are different.”
Some see the source of the recent investments as stemming from the company’s December management shake up, as a sign that co-CEOs Egon Durban and Greg Mondre are putting their own mark on the firm.
The two men assumed their roles in December as part of a succession plan that saw managing partner Mike Bingle become a vice chairman and a managing partner emeritus, while Ken Hao became chairman of the firm.
The four men, who grew up together at Silver Lake, took over day-to-day management years ago from original founders David Roux, Jim Davidson, Glenn Hutchins and Roger McNamee, who founded the company in 1999. McNamee left a few years later to found Elevation Partners.
“They were one of the first pioneers in tech buyouts and tech private equity,” said Steven Kaplan, a professor at the University of Chicago’s business school who has conducted extensive research into the private equity industry. “It was very controversial at the time – people didn’t think you could put leverage on tech companies. That turned out to be very wrong.”
Others see the latest moves as the outcome of a lack of attractive opportunities for transformative deals. Unlike Vista or Thoma Bravo, Silver Lake seemed unwilling to chase valuations over the past few years. That put them at a relative disadvantage, according to some of the people.
Silver Lake saw its opportunity when valuations plunged earlier this year and solid companies with iconic founders and seemingly durable business models suddenly needed financing. Silver Lake quickly showed itself to be, as one banker put it, “validation capital.”
“If you’re raising money and you have one key investor and you have one phone call to make, these are the guys we call,” another banker said. “It’s the tech version of Warren Buffett.”
Unusual deal talks
Silver Lake’s $1 billion investment in Twitter effectively called a truce between CEO Jack Dorsey and activist investor Elliott Management. Durban joined the Twitter board.
After Elliott went public with its demands, Durban called Dorsey and asked how Silver Lake could help, according to one person with knowledge of the exchange. The Silver Lake partner had been interested in the social-media company for years and finally saw his chance.
The time between the first call and the investment was about one week, lightning fast in the world of private equity, according to someone with knowledge of the talks.
The Airbnb investment also unfolded in an unconventional manner. When Silver Lake began talking to Airbnb about more funding, Durban had never met Airbnb CEO Brian Chesky, according to a person familiar with remarks he made at a recent event for JPMorgan private-wealth clients. Deal talks progressed virtually and Silver Lake conducted due diligence without meeting the management team, others said.
In the end, the company joined with Sixth Street to invest $1 billion in a combination of debt and equity securities. The company also took a piece of another $1 billion senior loan made to Airbnb by a second group.
The investment, along with one made in Expedia, is a big bet that travel will come back strong. Durban won’t join the Airbnb board.
“This was a situation where there was dislocation and there were liquidity issues,” Kaplan said. “People are looking for money and they aren’t looking for control.”
Earlier this week, Silver Lake made another minority investment, spending $100 million to buy 12% of Far Point Acquisition Corp.
The blank-check company is in talks to buy Global Blue, a Swiss player in tax-free shopping, from the private equity firm for $2.6 billion. FPAC’s board is resisting the deal, so Silver Lake bought the stake in the blank check company to lend their support to the deal.
One attorney who has worked with Silver Lake considered the move “aggressive,” given that the investment essentially positions the firm on both sides of the deal.
‘That’s a head scratcher’
Silver Lake has always been structured in a way that gives it flexibility to invest in large-scale buyouts, minority investments, and everything in between. The company has a fund called Alpine that focuses on “non-control” debt and equity investments.
And in December, the company said it would “expand its asset base” not only for large-scale private equity, but a “structured equity and debt investment strategy.”
Even so, a bunch of minority investments where they can’t drive the company strategy aren’t going to put up the kind of return numbers that investors in their funds expect, industry sources said.
“In the absence of doing large-scale control deals, they are starting to do minority deals and PIPE deals and that’s ok if you do one or two of them,” one private-equity manager said. “But if you start deploying virtually all your deals in a form and fashion that is different from what was successful originally? That’s a head scratcher.”
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