Silver Lake’s support of dealmaking CEOs is paying off

3D printed clouds and figures appear in front of the VMware cloud service logo in this February 8, 2022 illustration. REUTERS/Dado Ruvic/Illustration

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May 26 (Reuters) – Private equity firm Silver Lake has spent years cultivating and backing big business-loving CEOs, a strategy that has manifested itself in big acquisitions like the deal between chipmaker Broadcom Inc (AVGO. O) and cloud computing company VMware Inc (VMW.N) is coming along.

Earlier Thursday, Broadcom announced it would acquire VMware for $61 billion, its second-largest acquisition globally so far this year. Continue reading

Silver Lake, which has nearly $90 billion in assets under management, was heavily involved in negotiations to merge the two companies, according to people familiar with the matter. It’s due for a payout because it owns a 10% stake in VMware. A Silver Lake spokesman declined to comment.

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Silver Lake’s investment in VMware follows a relationship that began ten years ago with Michael Dell, Chief Executive of Dell Technologies Inc (DELL.N). The relationship was managed for Silver Lake by its co-CEO Egon Durban.

The history of the buyout firm with Broadcom boss Hock Tan goes back even further. Silver Lake was part of a private equity consortium that formed Broadcom’s predecessor, Avago, by acquiring Agilent Technologies Inc (AN)’s semiconductor business in 2005 for $2.66 billion.

Silver Lake helped these CEOs initiate acquisitions. The strategy has diversified Silver Lake’s investments, which focus on leveraged buyouts and growth investing, and helped differentiate it from its peers.

Mehdi Khodadad, co-head of the private equity practice at law firm Sidley Austin LLP, said this playbook could help Silver Lake get more value out of deals.

“Private equity firms can help provide their expertise in executing a synergy plan and disposing of non-core assets of the combined pro forma business,” Khodadad said.

Silver Lake provided $1.4 billion in equity to help Michael Dell privatize his namesake computer manufacturer in 2013.

Three years later, Silver Lake participated in a $4.25 billion equity financing for Dell’s $67 billion acquisition of data storage company EMC Corp. Through this transaction, Dell acquired EMC’s 81 percent interest in VMware. Dell also issued a new currency to fund this deal — a “tracking stock” tied to the value of VMware stock.

Dell became a public company in 2018 by buying back the tracking stock in exchange for its own stock and up to $9 billion in cash.

Silver Lake acquired a 10 percent stake in VMware when Dell sold its majority stake to its shareholders last year. Michael Dell received a 40 percent stake in VMware. Silver Lake remains Dell’s second-largest shareholder with a 12.8% stake.

The trip from Silver Lake with Hock Tan was similar. Silver Lake retained a stake in Avago when it went public in 2009 and helped arrange debt financing for Avago’s $37 billion acquisition of Broadcom in 2015. Avago also took the Broadcom name.

In 2017, Broadcom launched a $117 billion takeover bid for rival chipmaker Qualcomm Inc (QCOM.O), and Silver Lake was in the process of providing $5 billion in funding. This takeover was thwarted by the US government, fearing that Broadcom, then headquartered in Singapore, would dominate the US semiconductor industry.


Silver Lake’s gains from these investments are unknown. Some of the firm’s most recent funds, the $15 billion Silver Lake Partners V and the $10.3 billion Silver Lake Partners IV, reported IRRs of 37% and 37%, respectively, as of September last year 36.7% data from the California Public Employees’ Retirement System (CalPERS). Most private equity funds target a 20% net IRR.

Silver Lake, whose investments include vacation rental company Airbnb Inc (ABNB.O), self-driving startup Waymo and online lender SoFi Technologies Inc (SOFI.O), also has another big deal pending thanks to its relationship with has brought a dealmaker CEO – Elon Musk’s $44 billion acquisition of Twitter Inc (TWTR.N). Continue reading

Silver Lake offered to fund Musk’s proposed $72 billion bid in 2018 to privatize electric car maker Tesla Inc (TSLA.O). Musk didn’t take up that offer, but reached out to Durban four years later, who was on Twitter’s board of directors when he decided to acquire the social media company.

A Twitter regulatory filing revealed how Durban acted as a liaison between Musk and the Twitter board last month. He became Twitter director since 2020, when Silver Lake invested $1 billion in the company in the form of convertible bonds.

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Reporting by Chibuike Oguh in New York Additional reporting by Krystal Hu in New York Editing by Greg Roumeliotis and Matthew Lewis

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