Silver Lake’s quest for ‘big all-in bets’

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Silver Lake prepares for big ‘all-in’ bets

US private equity group Silver Lake is up to big things.

The technology focused firm with about $100bn in assets is among the architects of what could be the biggest corporate merger to close this year: Broadcom’s $69bn cash and stock takeover of VMware.

Its co-chief executive Egon Durban is chair of Ari Emanuel’s Endeavor Group, which in April announced an all-stock merger of Ultimate Fighting Championship with World Wrestling Entertainment that would create a new combined company valued at more than $20bn.

The firm gained the upper hand earlier this month in a takeover battle for Software AG, one of the largest and oldest technology companies in Europe. On Wednesday, it closed the largest US leveraged buyout of the year, taking software company Qualtrics private for $12.5bn.

In a rare interview with DD’s Antoine Gara, Durban laid out the closely followed private equity group’s mantra.

“If you see us invest right now, by definition it will be a big all-in bet,” Durban said in the interview. “You’re going to see us do . . . a handful or two of large, really important investments a year and that’s it.”

Silver Lake has decided to increase the ambition of its dealmaking efforts and concentrate on larger bets, hoping to capitalise on an uncertain economic backdrop where there may be opportunities to invest in tech companies such as Qualtrics which were previously out of reach.

The Qualtrics deal cut against private equity convention. It was mostly assembled in the early parts of the year when soaring interest rates and a spreading US regional banking crisis put M&A markets on ice.

Silver Lake is using just over $1bn in debt and more than $10bn in combined equity to finance its takeover in a strategy to sidestep frozen credit markets and not overburden Qualtrics with high-cost debt.

The firm and its investors contributed about $9bn of the purchase price while Canadian pension fund CPP Investments put in $1.75bn. 

On Wednesday, Silver Lake added BDT & MSD Partners — the private capital firm founded by Byron Trott and Michael Dell — to the consortium. Accel, an early Qualtrics backer and Dell’s own family office, also joined the mix, bringing in $1bn in equity.

Regardless, Silver Lake is still making the largest equity investment in its history. The firm has plenty of cash — it disclosed in a recent securities filing that it had already raised more than $19bn for its newest private equity fund, which generally wouldn’t reflect the firm’s own commitment to its funds.

Cash also will come in the door if regulators approve Broadcom’s VMware takeover, which would allow the group to distribute billions in cash to investors.

“Our greatest successes as an institution have been when we are big in terms of capital and in firm resources committed,” said Durban of Silver Lake’s aggressive posture.

“We won’t be doing follow-on small things without active engagement at a minimum, or control as a maximum,” he added. “We’re not signalling, we are actually just doing.”

The hottest deal of the summer: loan portfolios

Back in April, Blackstone president Jonathan Gray heralded a “golden moment” for private credit as US regional banks pulled back on lending.

One way that has come is in the form of great deals on loan portfolios, as lenders look to boost their liquidity after the turmoil at First Republic and Silicon Valley Bank.

One of the latest of such deals came this week, when Ares Management agreed to buy $3.5bn in speciality finance loans from PacWest, a Los Angeles-based lender that was plunged into hot water after SVB’s March collapse.

“There are currently a lot of portfolios changing hands. It’s not just PacWest,” Joel Holsinger, co-head of alternative credit at Ares, told the FT “This is the first inning.”

DD readers may remember earlier this week when we wrote about the private credit sector’s push into investment-grade debt as more blue-chip companies turn their backs on banks in favour of the private capital industry’s $1.4tn arsenal.

KKR’s recent agreement to buy up to €40bn of consumer loans originated by PayPal is one among various efforts by the firm to break into “asset-based” finance — fixed-income products such as mortgages, car loans, consumer lending and so on. Last month, it committed to buy $550mn of solar energy consumer loans from SunPower.

“We’ve always bought assets from banks, but now we are in a period of a thematic shift,” said KKR’s private credit head Daniel Pietrzak.

That shift has been under way for years. But it has gained even more momentum as the so-called “masters of the universe” wander further from their leveraged buyout roots into the more predictable, albeit less glamorous, credit game.

That’s an ego blow many are willing to take, however, as banks’ struggles make private credit a more lucrative business by the day.

Job moves

• Oaktree Capital Management boss Jay Wintrob will step down next year after nearly a decade as the firm’s first chief executive. Portfolio manager Robert O’Leary and performing credit head Armen Panossian will succeed him as co-chief executives. Separately, general counsel and administrative chief Todd Molz will become operating chief.

• Former Lehman Brothers banker David Kim is retiring as chief operating officer of PAG’s private equity business after 13 years at the firm, per Bloomberg.

• Bloomberg separately reported that senior Carlyle Group executive Patrick Siewert, based in Hong Kong, is leaving his role as head of consumer, media and retail but will stay on as a senior adviser.

• Gresham Investment Management’s Irene Perdomo has joined Dubai-based Ocean Leonid Investments as co-head of systematic strategies.

• Nomura has hired Barclays’ former head of macro trading Nat Tyce as head of global markets for Europe, the Middle East and Africa, according to Financial News.

Smart reads

Somebody’s watching A private investigator spied on the boss of one of America’s biggest power companies, sparking an internal investigation into whether it was commissioned by a fellow executive. The Wall Street Journal reports.

Sink or swim Thames Water is treading for its life. FT Alphaville dives into its murky finances.

And one smart listen: Gene sequencing company Illumina took a bet on cancer detection start-up Grail during the height of the biotech boom. The FT’s Behind the Money podcast explains what went wrong.

News round-up

Police raid more than 20 offices and premises in Adler Real Estate probe (FT)

Pension schemes argue London listing reforms would damage City (FT)

PwC tells UK staff to expect smaller pay rises and bonuses (FT)

BBC chair calls for board to re-establish confidence at broadcaster (FT)

Securities broker faces insider-trading probe tied to Morgan Stanley deals (Wall Street Journal)

PE firm Arcline tops KKR’s offer for Circor as bidding war intensifies (Reuters)

Morgan Stanley-backed Durango to explore $1bn sale (Bloomberg)

KKR/Circor: congratulations, your underbid has won the deal (Lex)

Why are so many newly floated companies being taken private? (Alphaville)