Silver Lake’s playbook attracts scrutiny in Europe

One thing to start: Shareholders in British healthcare start-up Babylon are set to be wiped out as the company’s main lender is poised to take control of the business.

In today’s newsletter

• Silver Lake and Bain’s dealmaking duel

• SoftBank gives up on being the next Berkshire

• Adani goes on the defence 

The Silver Lake and Bain Capital deal drama in Germany

Silver Lake, the US technology buyouts group that helped Michael Dell take his PC company private a decade ago, is ratcheting up its deal machine after taking a cautious approach to soaring tech valuations in recent years.

But the tactics of the near-$100bn in assets investment group are coming under scrutiny as a takeover battle builds in Europe.

Silver Lake has bid €2.6bn to buy Germany’s Software AG, a pioneer of the European tech sector that stagnated on public markets until its nascent cloud computing business caught Wall Street’s eye. Now a rival bid by Bain Capital has unearthed criticisms of Silver Lake’s complex deal dance.

UK asset manager Schroders, a major shareholder in Software AG, told the FT that Silver Lake’s bid “materially undervalues the company” and said Software AG’s unwillingness to engage with the Bain counter-offer could raise conflict of interest issues.

“[We] are surprised that the takeover committee appears unwilling to engage with potentially higher offers from other interested parties,” said Schroders. “It could be seen as raising potential questions regarding conflicts of interest and whether appropriate fiduciary process is being followed to equally protect the interests of minority shareholders.”

In late 2021, Silver Lake invested €344.3mn into the Darmstadt-based software company as its sale process floundered.

Christian Lucas, co-head of the buyout group’s European operations, became chair of Software AG and another Silver Lake designee joined its board.

Software AG’s share price continued to stagnate until Silver Lake bid €30 a share to take the company private last month. It upped the offer to €32 a share and negotiated a deal to purchase a quarter of Software AG’s stock from the foundation of its co-founder Peter Schnell.

But Bain has gatecrashed the takeover by indicating it would pay as much as €36 a share to merge Software AG with its portfolio company Rocket Internet. The effort has been rebuffed by an independent committee of Software AG’s board.

It’s the second takeover effort led by Silver Lake this year to buy a public company where it has board representation. (Silver Lake’s designees were recused from both negotiations.)

Silver Lake is completing a $12.5bn takeover of US software company Qualtrics, where it has owned a large shareholding and co-chief executive Egon Durban is a director.

There will probably be new twists, especially if Bain submits a firm offer or other shareholders complain. In Germany, interests such as “stakeholder value” can be considered alongside shareholder value, complicating matters.

After helping Michael Dell privatise his PC company in 2013 to the complaint of billionaire Carl Icahn, Silver Lake is well practised in navigating controversial takeovers.

The group’s dealmaking finesse will become increasingly visible as it revs up its deal machine and unearths the next Qualtrics or Software AG.

SoftBank’s ‘Berkshire Hathaway’ ambitions slip away

When SoftBank first acquired control of Fortress Investment Group for $3.3bn in 2017, the Japanese group’s serial dealmaker-in-chief Masayoshi Son had a vision to create the “Berkshire Hathaway of tech”. 

The alternative investment manager would open doors in the lucrative worlds of private equity and hedge funds for the tech-focused conglomerate that had just splashed $32bn on UK chip designer Arm and was busy finalising a $100bn partnership with Saudi Arabia’s crown prince.

More than six years later, though, the Fortress investment meant to catalyse SoftBank into a private capital powerhouse has become a way to pay down its piling debts.

Earlier this week the FT revealed that months of talks to sell Fortress to Abu Dhabi sovereign wealth fund Mubadala have reached a late stage. SoftBank has also moved to sell nearly all of its crown jewel stake in Alibaba. 

The Chinese ecommerce behemoth’s shares had been hammered by Beijing’s crackdown on tech, leaving SoftBank to sell most of its holding at prices on a par with where Alibaba opened for trading in New York eight years ago.

SoftBank, as DD readers are aware, has also halted new investments and is also preparing for a blockbuster initial public offering of Arm in New York to help fuel its turnround plan.

After posting a final loss of ¥970bn ($7.2bn) in consolidated results for the year to March, it has high hopes that the Arm flotation will fetch a valuation of about $60bn.

But valued at an industry multiple, $34bn is more likely, by Lex’s calculations. Meanwhile SoftBank’s other racehorse, its stake in TikTok parent ByteDance, is at risk as a political battle over the app plays out in the US.

It begs the question of whether SoftBank’s “defensive mode” is strong enough to push through the challenges to come.

Adani pulls back on dealmaking in Hindenburg’s wake

After accusing Gautam Adani’s conglomerate of engaging in stock price manipulation and accounting fraud, short seller Hindenburg Research has already dropped another “Blitzkrieg”, as put by its latest target Carl Icahn.

But the Indian tycoon and his empire are still doing damage control.

The billionaire’s flagship company Adani Enterprises more than doubled its profit after tax for the three months ending in March to Rs7.8bn ($95mn) from the same period last year.

But it has also been forced to rein in dealmaking after Hindenburg’s report wiped $100bn off the Adani companies’ market capitalisation.

The company, which denies Hindenburg’s allegations, pulled out of purchasing a $847mn coal power plant in India in February and has since refrained from making new deals.

The path forward poses challenges for more than just Adani: as India’s market regulator sets out to investigate the conglomerate, opponents of Narendra Modi’s government have seized on the prime minister’s supposed close relationship with the industrial mogul.

The FT’s Chloe Cornish has all the details. But we’ll leave you with one last interesting titbit from her reporting: despite rejecting Hindenburg’s claims, Adani did respond to one of its criticisms by replacing one of its auditors, Shah Dhandharia.

The group “hardly seems capable of complex audit work”, Hindenburg wrote in its report.

Job moves

• BlackRock is overhauling the organisation of its alternatives business, according to a memo seen by DD. Global credit head Jim Keenan will be repositioned to focus exclusively on private credit while Rick Rieder, chief investment officer of its fixed income unit, will oversee leveraged finance and other more liquid credit strategies. Edwin Conway, who previously ran alts, will lead a new unit focused on private equity, infrastructure, real estate and climate investing.

• Blackstone’s credit arm has hired Jane Bradshaw, previously Morgan Stanley’s

  co-head of leveraged debt capital markets, as a managing director and European head of capital markets in London.

• Separately Teddy Desloge has been named chief financial officer of Blackstone’s secured lending fund among other new appointments.

• Hatem Dowidar, chief executive of United Arab Emirates telecoms group e&, is joining Vodafone’s board following the Abu Dhabi-listed provider’s purchase of a near 15 per cent stake in the UK operator.

• Luke Ellis, chief executive of the world’s largest listed hedge fund manager Man Group, is to retire and will be replaced by the company’s president Robyn Grew.

Smart reads 

Smooth operators Private credit giants are increasingly clinching covert deals under the radar to get more attractive terms on financing leveraged buyouts, Bloomberg reports.

Financiers take flight JPMorgan boss Jamie Dimon is a prolific passenger of the company jet. But his new colleague, First Republic chair Jim Herbert, trails closely behind, Alphaville writes.

Admission wars One downside for hedge fund managers and other elite Manhattanites flocking to Miami? There aren’t enough prep schools for their children, the FT’s Joshua Chaffin writes.

News round-up

FDIC to hit biggest US banks with $16bn bill for SVB clean-up (FT)

Blackstone in talks with US regional banks over lending partnerships (FT)

BBC review finds outgoing chair Richard Sharp breached code of practice (FT)

PacWest tumbles after reporting 9.5% drop in deposits last week (FT)

Saudi Aramco to postpone mega IPO of energy trading unit (Bloomberg)

Elliott Builds interest in Goodyear, pushes for review (Bloomberg)