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As I mentioned in the last video, Silver Lake, the American Private Equity firm, recently invested $500MM in Manchester City owners City Football Group for a stake of just over 10%.

Today, Silver Lake has Assets Under Management (AUM) of $43 billion, and is focused on leveraged buyout and growth capital investments in technology and tech-enabled businesses. 
However, Silver Lake has an interesting story, so let's take a look...

Silver Lake was founded in 1999, and just months after its' formation in 1999, Silver Lake had already gathered more than $2 billion in commitments for its debut buyout fund focused on the tech industry. Everybody who was anybody at the time in Silicon Valley and Wall Street had invested in Silver Lake.
These included Bill Gates and Michael Dell (via their money managers) and Larry Ellison, all the big cheeses at the investment banks, as well as institutions such as General Motor's pension fund.

The founding team was one of the most unique in recent private equity history, and their pedigree played a large role in their spectacular early fundraising.
In fact, there were labelled "the four amigos":
Jim Davidson was a former investment bank managing director, Glenn Hutchins was a buyout expert from Blackstone, Roger McNamee was a superstar Silicon Valley investor, and Dave Roux was a one-time executive at Oracle.
Now at that particular time, tech LBOs (LBO just means Leveraged Buyout) weren't really a thing - this is because tech companies at the time had lofty valuations, a lack of earnings and volatile profits...

Before Silver Lake formed in 1999, investors could buy shares in public tech companies or invest in private tech companies via venture capital.
However, the NASDAQ was around 440 in January 1990 and around 3600 in December 1999; that's a 9x (of course the Warren Buffett phrase "Be fearful when others are greedy comes to mind!")

Silver Lake had a different strategy - instead of buying these highly valued companies, they instead focused on slower-growth tech companies (which weren't being shilled regularly by Wall Street!)
We can see the timing was pretty good, as the tech bubble popped hard from the end of 2000 to mid-2002; it is actually currently sitting around 8600, which is not far from double the top of the bubble in 2000.

In short and to simplify things: an LBO just means a Leveraged Buyout - the target for such deals tend to be (ideally) undervalued companies with stable cash flows. This means that the firm can Buyout said company for a reasonable price, use Leverage to buy it (that's the leveraged part) and use the stable cash flow to pay down the debt (because using leverage means using debt which has an interest associated with it). Assuming the cash flow can pay down the debt and improvements in operations can increase the valuation, you can then sell for a tidy profit.
That should provide a basic overview, but for more detail check out my video on the Types of Private Equity Deals.

Looking at the tech industry at the time, Silver Lake had spotted an interesting trend in the data and they called this the "secret sauce" of their research at the time:
They found that 50% OF ALL PUBLICLY TRADED TECH COMPANIES SOLD ON AVERAGE FOR ONE TIMES ANNUAL SALES OR LESS, many of which were still posting top and bottom line growth of 10% or more.
Traditionally, that would be attractive for investors, but the herd mentality of seeking rapidly growing tech companies at the time had left a part of the market under-served, and Silver Lake sure capitalized on that.
This is one of the key reasons that they were able to raise $2.2BN in a few months, because many institutional investors craved a less expensive and less crowded way to play technology.
In fact, the Silver Lake Partners said they could have raised $4BN and the biggest challenge was cutting their limited partners (the investors) back.

It was a relatively slow start in terms of number of deals - but the deals that the firm does pursue tend to be large in scale. For example, since the beginning of 1999, Silver Lake has invested in 25 deals worth at least $1BN.

The firm operates four distinct strategies:
The biggest, Silver Lake Partners, pursues large-cap deals, 
while Silver Lake Sumeru conducts middle-market investments, 
Silver Lake Waterman specializes in growth-stage fundings and 
Silver Lake Kraftwerk invests in the energy and resource sectors.

In 2017, Silver Lake raised $15BN for its' fifth buyout fund and this is one of the biggest devoted to tech deals.

Also, Silver Lake is a major investor in Endeavor - which in 2016 bought the UFC.



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