In the last few months, the world has grinded to a halt. Covid-19 has locked down over 140 countries, and the global economic outlook remains bleak. However, this has not stopped the private equity firm, Silver Lake, from making some bold bets on ailing businesses. At the forefront of these moves is Egon Durban, the Co-Head, likened to the notorious Warren Buffett.
Mr Durban’s entry into the media and entertainment field has been nothing short of spectacular. Since taking over as co-head of Silver Lake, he has pivoted away from technology companies such as Alibaba, Dell, and Skype, that the private equity firm was renowned for since its inception in 1999. Instead, the firm’s present portfolio is largely entertainment-based, holding companies such as Endeavor, AMC, Oak View Group and City Football Group.
The purchase of ten per cent of City Football Group - the Abu-Dhabi controlled organisation that owns Manchester City, among other teams around the globe - shows vision for a great expansion into the field of entertainment. But issues are starting to arise.
Activists have already attempted to project their negative sentiment towards the Manchester City owners. They believe that it is a means to dampen the criticism of the UAE’s human rights record. However, recent events have led to major activity within the portfolio itself:
1) Manchester City’s two-year ban from the UEFA Champions League. The announcement in February that Manchester City would be banned from the Champions League for two years due to “serious breaches” of Financial Fair Play (FFP) regulations, has been music to the ears of many other clubs. The ban, as well as an additional fine from UEFA, could lead to a loss of £100m in revenue each year that the club is banned from Europe’s elite footballing competition. This will prove to be a big blow to the City Football Group, especially when taking into account that Manchester City seems to be their only profitable football club. Silver Lake has openly stated they do not have concerns over the ban; however, profits will dwindle.
2) More importantly, Covid-19 has led to Mr Durban adding other holdings to his portfolio, as well as putting strain on certain positions. In late March, Silver Lake committed $0.5bn in a distressed loan deal to help Airbnb after they had to shelve an IPO filing. In recent months, Durban has also committed to other out-of-favour tech companies such as Twitter (who saw their CFO sell 8,000 of his shares in the company on June 9th) and travel booking site Expedia, who are in financial difficulty for obvious reasons. Similar to Mr Buffett in 2008, if these aggressive investments pay off then he will be considered a modern-day genius, but if Covid-19 drags on for years? Well… these investments may be in doubt. Add to this the challenges faced by Endeavor, AMC, and City Football Group due to country-wide lockdowns, and the risk that seems to be in play is large for Silver Lake and Mr Durban.
It is impossible to tell whether the risk will pay off. If it doesn’t, Mr Durban will be known for injecting millions into hotel companies and advertising companies in the middle of a pandemic, while losing millions more in the entertainment industry. He will definitely be hoping that this doesn’t happen!