- Silver Lake Partners and Sixth Street Partners made a bold call on the future of travel when they loaned $1 billion to Airbnb in a deal that also included a small equity piece.
- That call has now paid off handsomely as Airbnb opens for trading on the Nasdaq today.
- Silver Lake’s stake in the company is now worth more than $620 million, while Sixth Street’s is worth more than $466 million, assuming the companies exercise their warrants.
- Visit Business Insider’s homepage for more stories.
In April, just weeks after the raging coronavirus pandemic threatened to shut down the US economy, Silver Lake Partners and Sixth Street Partners made a bold bet.
The two private-investment firms together lent $1 billion to Airbnb, the home-sharing company that was then watching its revenue plunge as people around the world stopped traveling. The loan came with a lofty coupon of about 10% and an equity kicker in the form of warrants that converted into one share apiece at less than $30.
The following month, Silver Lake bought a slug of common shares off of Belinda Johnson, the former chief operating officer of Airbnb who now sits on its board, for more than $27 million.
It was a bet that travel would snap back at a time when many couldn’t imagine it.
But Airbnb CEO Brian Chesky moved quickly, slashing head count by 25% in May and pivoting the company to focus on local stays. On Thursday Airbnb’s shares started trading publicly for the first time. The stock opened at $146 a share, or five times the warrant’s exercise price, valuing Airbnb at more than $100 billion.
In other words, the bet made by Silver Lake and Sixth Street has paid off handsomely.
Silver Lake’s stake is now worth more than $620 million, assuming the investor exercises its warrants. It hasn’t given any public indication that it plans to anytime soon.
That’s based on the more than 5 million shares of the company that Silver Lake owns, either directly or through warrants that give it the right, but not the obligation, to buy stock, according to the prospectus. The warrants are worth $466.7 million once the cost of exercising them is taken into account. And Airbnb turned the investment of more than $27 million in Johnson’s shares, as well as 125,000 other shares, into almost $155 million.
Sixth Street did well too, and its stake would be valued at $466.7 million if it exercised its warrants.
Spokespeople for Silver Lake and Sixth Street declined to comment for this story.
Read more: Silver Lake has been plowing money into bets like Airbnb, Twitter, and Waymo. Here’s a look inside why it’s being called the Warren Buffett of tech.
Nathan Blecharczyk, one of Airbnb’s founders, said the decision to raise money at that point in time was critical, as was the company’s decision to do it mostly in the form of debt, rather than equity that would have diluted existing shareholders.
“People were saying our valuation was $18 billion,” Blecharczyk told Business Insider in an interview on Thursday. “So to raise equity at that price would have heavily diluted the company, the shareholders, the employees, and we were confident that eventually travel was going rebound and Airbnb was going to be there to do it. So that was the right way to go. It made sense then, and, in hindsight, I think the choice really makes a lot of sense.”
But when Silver Lake made its investment, some people on Wall Street were questioning the approach. The Airbnb deal was part of a string of small minority positions or large loans for companies as opposed to the firm’s more traditional playbook of pursuing large-scale leveraged buyouts that give it control.
In March, as the coronavirus pandemic gathered steam, Silver Lake plowed money into Google’s self-driving-car unit Waymo and Twitter. In April, and then May, it followed with investments in Airbnb, Expedia, and the India broadband startup Reliance Jio.
To do so, it had to rely on unconventional and untested methods. When Silver Lake began talking to Airbnb about more funding, managing partner Egon Durban had never met Chesky, according to Business Insider’s previous reporting. Deal talks progressed virtually, and Silver Lake conducted due diligence without meeting the management team.
That wasn’t the only tie-up between the two companies. Silver Lake also took a piece of another $1 billion senior loan made to Airbnb by a second group of lenders. That transaction didn’t include an equity portion.
Candy Cheng contributed reporting.
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