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Silver Lake (investment firm)

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Silver Lake
Company typePrivate, Limited liability company
IndustryPrivate equity, Technology
Founded1999
FounderJames Davidson, David Roux, Roger McNamee, Glenn Hutchins
HeadquartersSand Hill Road
Menlo Park, California, United States
ProductsLeveraged buyout, Growth capital
AUM$20 billion
Number of employees
75+[1]
Websitewww.silverlake.com

Silver Lake is an American private equity firm focused on leveraged buyout and growth capital investments in technology, technology-enabled and related industries. Founded in 1999, the firm is an investment firm in the technology sector. Notable among its investments are Avago, Dell, Alibaba, Go Daddy, William Morris Endeavor/IMG, Avaya, Sabre Holdings, Skype, Seagate Technology[2] and Instinet.

Main Funds and Investment Strategies

Silver Lake operates through three primary businesses, all focused on technology investments:

  • Silver Lake Partners makes private equity investments in large cap technology companies. Silver Lake Partners was the firm's original business founded by Jim Davidson, Dave Roux, Roger McNamee and Glenn Hutchins, and comprises the bulk of the firm's assets under management.[3]
  • Silver Lake Sumeru – focuses on technology investments in middle-market companies. The Sumeru business was formerly known as Shah Capital founded by Ajay Shah.
  • Silver Lake Financial a credit focused business invests in distressed debt securities in companies in the technology sector.
  • Silver Lake Kraftwerk a growth oriented fund focused on energy, energy technology and resources investing.
  • Silver Lake Waterman a growth capital, via a proprietary Growth Debt product, to later-stage growth companies in the technology and technology-enabled industries.

The firm, which is headquartered on Sand Hill Road in Menlo Park, California and also operated from Cupertino, California has about 75 investment staff across offices in New York City, London and Hong Kong.

History

History of private equity
and venture capital
Early history
(origins of modern private equity)
The 1980s
(leveraged buyout boom)
The 1990s
(leveraged buyout and the venture capital bubble)
The 2000s
(dot-com bubble to the credit crunch)
The 2010s
(expansion)
The 2020s
(COVID-19 recession)

Silver Lake was founded in 1999, at the height of the late 1990s technology boom to make private equity investments in mature technology companies as opposed to the startups pursued actively by venture capitalists. Among the firm's founders were the four amigos [4] Jim Davidson who had led the Technology Investment Banking business at Hambrecht & Quist; David Roux who had an operational and entrepreneurial background having served as Chairman and CEO of Liberate Technologies, executive vice president at Oracle Corporation and senior vice president at Lotus Development; Roger McNamee, who had previously co-founded Integral Capital Partners, a hybrid investment fund that made investments in publicly traded companies and venture capital investments in early stage startups; and Glenn Hutchins, who came from Blackstone Group and served as a Special Advisor on economic and healthcare policy in the early Clinton Administration and previously worked at Thomas H. Lee Partners;.[5][5]

The firm raised its first fund, Silver Lake Partners, with $2.3 billion of investor commitments. Silver Lake's first fund was among the best performing funds of its vintage.

The firm's second fund, Silver Lake Partners II was raised in 2004 with $3.6 billion of commitments.[6]

The firm's third fund, Silver Lake Partners III was raised in 2007 with $9.6 billion of commitments.[7] Also in 2007, the firm launched its middle-market investment business, Silver Lake Sumeru, hiring Ajay Shah and the former investment team of Shah Capital Partners. Sumeru completed fundraising for its debut fund in 2008 with $1.1 billion of capital.[8] Silver Lake also launched its credit focused business, Silver Lake Financial in 2007. Silver Lake Financial is headed by Roger Wittlin, who joined the firm together with a group of staff from Sutter Credit Strategies, a division of Wells Fargo.

In 2013, the firm raised its fourth fund, Silver Lake Partners IV, which closed in 2013 with $10.3 billion in committed capital.

Key personnel

In 2004, McNamee left Silver Lake to found Elevation Partners, an entertainment and media focused private equity firm, with Bono.[9]

On December 20, 2007 Cisco Systems Inc.'s Development Chief, Charles Giancarlo, announced his departure from Cisco and his new position as partner and managing director at Silver Lake.

In January 2008, as the mid-2000s buyout boom was coming to an end, Silver Lake sold a 9.9% stake in its management company to CalPERS for $275 million, implying a valuation of approximately $2.8 billion for the firm.[10]

Contemporaneously with the raising of the firm's fourth large-cap fund in 2013, 'Silver Lakes new four amigos',[11] a group of four investment professionals Mike Bingle, Egon Durban, Ken Hao and Greg Mondre, all of whom had been with the firm since it's founding took leadership positions as Managing Partners in the firm alongside founder Jim Davidson.

In October 2013, it was announced that Skype's Chief Operating Officer and Development Chief, Mark Gillett would depart from Microsoft [12] and succeed Charles Giancarlo as a managing director and head of value creation,[13] while Mr Giancarlo would transition to a be a senior advisor to the firm.

Investments

Since inception in 1999, Silver Lake has made investments through leveraged buyout transactions, minority growth investments and PIPE investments in over 40 companies.

Silver Lake's current and realized portfolio of investments includes or has included technology industry companies such as Avago Technologies, AVI-SPL, Business Objects, Flextronics, Gartner, Instinet, IPC Systems, MCI Inc., MultiPlan, NASDAQ, NetScout Systems, NXP Semiconductors, Sabre Holdings, Seagate Technology, Serena Software, SunGard, Talend, TD Ameritrade, Technicolor SA, UGS Corp., and Virtu Financial.

The following table details some of Silver Lake's private equity investments:

Investment Year Company description
Dell 2013 On 5 February 2013, Dell Inc. announced that they have agreed on a buy-out by Michael Dell and Silver Lake for $13.65 per share in cash. The shares of founder and CEO Michael Dell and some of its key management are not included in this deal. Microsoft additionally provided $2 billion in the form of a loan to assist with the buy-out.[14][15] If the deal is completed Dell will be de-listed from NASDAQ and the Hong Kong Stock Exchange and will again be a fully privately owned company as it was before its first Initial public offering. According to Michael Dell this move will make it easier to work on a long-term growth strategy as the company can make choices that will pay out on the longer term, without the need to address to demands of (short term) individual share-holders.[14]

The deal was completed on October 30, 2013, and at $24.4 billion was the largest technology buyout ever, surpassing the 2006 buyout of Freescale Semiconductor for $17.5 billion.[16] Other smaller investors are MSD Capital, an investment firm to manage the wealth of Michael Dell, Microsoft with a $2 billion loan and several debt-facilities from banks like Barclays, Credit Suisse, Bank of America and Royal Bank of Canada.[17]

Skype 2009 Silver Lake, Andreessen Horowitz and the Canada Pension Plan Investment Board announce the acquisition of 65% of Skype for $1.9 billion from E-Bay, valuing the business at $2.75 billion. In May 2011, Microsoft agreed to acquire Skype for $8.5 billion in cash. [18][19][20][21]
Avaya 2007 Silver Lake and TPG Capital completed an $8.2 billion leveraged buyout of the enterprise telephony and call center technology company that was formerly a unit of Lucent. [22]
Sabre Holdings 2006 Silver Lake and TPG Capital announced a deal to buy Sabre Holdings, which operates Travelocity, Sabre Travel Network and Sabre Airline Solutions, for approximately $4.3 billion in cash, plus the assumption of $550 million in debt. Earlier in 2006, Blackstone acquired Sabre's chief competitor Travelport. [23]
NXP Semiconductors 2006 In August 2006, a consortium of Silver Lake, Kohlberg Kravis Roberts and AlpInvest Partners acquired a controlling 80.1% share of semiconductors unit of Philips for €6.4 billion. The new company, based in the Netherlands, was renamed NXP Semiconductors. [24][25]
SunGard 2006 SunGard was acquired by a consortium of seven private equity investment firms in a transaction valued at $11.3 billion. The partners in the acquisition were Silver Lake, which led the deal as well as Bain Capital, the Blackstone Group, Goldman Sachs Capital Partners, Kohlberg Kravis Roberts, Providence Equity Partners, and TPG Capital. This represented the largest leveraged buyout completed since the takeover of RJR Nabisco at the end of the 1980s leveraged buyout boom. Also, at the time of its announcement, SunGard would be the largest buyout of a technology company in history, a distinction it would cede to the buyout of Freescale Semiconductor. The SunGard transaction is also notable in the number of firms involved in the transaction. The involvement of seven firms in the consortium was criticized by investors in private equity who considered cross-holdings among firms to be generally unattractive. [26]
Avago Technologies 2005 In 2005, the semiconductor division of Agilent was acquired by Silver Lake and Kohlberg Kravis Roberts, to form Avago Technologies, one of the largest privately held semiconductor companies in the world. In 2009, Avago completed a $650 million initial public offering. [27]

[28][29]

Reuters news service reports that Silver Lake Partners is among more than a dozen private equity firms subpoenaed by New York state Attorney General Eric Schneiderman regarding a widely used tax strategy within the industry that may illegally cut their tax bills by hundreds of millions of dollars.

Controversy

After the sale of Skype to Microsoft in 2011,[20] Silver Lake was accused of unfairly depriving an employee of an options windfall.[30] At issue was a clause in the Skype employee stock option grant agreement. The repurchase right gave Skype the authority to buy back shares at the grant price, when an employee left the company, even when those shares were vested.

References

  1. ^ Investment professionals as of 2009
  2. ^ Seagate to Be Taken Private in Intricate Buyout. New York Times, March 30, 2000
  3. ^ Silver Lake's New Four Amigos Dealmaker, September, 2007
  4. ^ http://fortune.com/2013/02/10/silver-lake-and-the-deal-of-the-next-century-fortune-1999/
  5. ^ a b Wall Street's New Alchemist (Glenn Hutchins Profile). BusinessWeek, August 8, 2005
  6. ^ Silver Lake Partners closes $3.6bn private equity fund. AltAssets, April 13, 2004
  7. ^ Silver Lake to Raise $10 Billion for Technology Fund. February 6, 2007
  8. ^ Silver Lake Sumeru closes on $1.1bn. AltAssets, May 7, 2008
  9. ^ Bono Riffs on Silicon Valley Buyouts With Video Games, Forbes. Bloomberg, January 23, 2005
  10. ^ Sorkin, Andrew Ross. "California Pension Fund Expected to Take Big Stake in Silver Lake, at $275 Million." New York Times, January 9, 2008
  11. ^ http://manual4ever.com/doc-file/silver-lakes-new-four-amigos
  12. ^ "Departing Skype Exec Gillett to Become Head of "Value Creation" at Silver Lake". Retrieved 2013-11-01.
  13. ^ "Silver Lake Announces Appointment Of Mark Gillett As Head Of Value Creation". Retrieved 2013-11-02.
  14. ^ a b Official Dell press release on (leveraged) buyout by Michael Dell and Silver Lake, 5 February 2013. Visited: 5 February 2013
  15. ^ Berkowitz, Ben; Edwin Chan (2013-02-05). "Dell to go private in landmark $24.4 billion deal". Reuters. Retrieved 2013-02-05.
  16. ^ Alden, William (2013-02-05). "Dell's Record-Breaking Buyout". The New York Times. Retrieved 2013-02-05.
  17. ^ Financial Times website: Michael Dell orchestrates $24bn buyout deal, 5 February 2013
  18. ^ EBay to Sell 65 Percent Of Skype For $1.9 Billion. New York Times, September 1, 2009
  19. ^ eBay Inc. Signs Definitive Agreement to Sell Skype in Deal Valuing Communications Business at $2.75 Billion
  20. ^ a b Skype Investors Reap Windfall in Deal With Microsoft. New York Times, May 10, 2011
  21. ^ The Big Winners in the Skype Deal. New York Times, May 10, 2011
  22. ^ Investment Firms Pick Up Avaya For $8.2 Billion
  23. ^ Sorkin, Andrew Ross. "2 Firms Pay $4.3 Billion for Sabre." New York Times, December 12, 2006.
  24. ^ Bloomberg News (2006-08-04). "Technology; Royal Philips Sells Unit for $4.4 Billion". New York Times. Retrieved 2008-04-27.
  25. ^ KKR in deal to buy Philips Semiconductors. Forbes, August 2, 2006
  26. ^ "Capital Firms Agree to Buy SunGard Data in Cash Deal." Bloomberg L.P., March 29, 2005
  27. ^ "Avago files for $400m IPO". 2008-08-28.
  28. ^ Avago Tech. (AVGO) Sees IPO Price of $13-$15. Street Insider, July 27, 2009
  29. ^ Avago Technologies Limited Prices Initial Public Offering. MSN Money, August 5, 2009
  30. ^ Why Some Skypers Are Seeing Red. BloombergBusinessweek Magazine, June 23, 2011
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