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Comment: They’re back!


So the leveraged buyout market isn’t dead after all.

So the leveraged buyout market isn’t dead after all. Not only did eBay manage to obtain what most observers regard as a pretty full price from a group of private equity and venture capital investors to finally draw a line under its misbegotten acquisition of Skype, but the deal has been at least partly financed by a consortium of banks led by JPMorgan and also including Barclays and Royal Bank of Canada.

The buying consortium is led by Silver Lake Partners and also includes Index Ventures (an investor in Skype before its purchase by eBay), Andreessen Horowitz (a venture capital firm whose principals include Netscape co-founder Marc Andreessen) and the Canada Pension Plan Investment Board.

There was some surprise at how much eBay managed to extract in what turned out to have been a competitive auction that also included Elevation Partners, a high-profile private equity firm whose co-founders include U2 singer Bono and Roger McNamee, who earlier helped set up Silver Lake.

The buyers are paying USD1.9bn in cash plus a USD1.25m note for 65 per cent of Skype, with eBay retaining the other 35 per cent, valuing the company at USD2.75bn. When you consider that the Luxembourg-based firm cost eBay USD2.6bn in 2005 and that its value was subsequently written down to USD1.2bn, it’s clear that the online auction firm has escaped from its adventure in internet telephone fairly lightly.

The deal is the biggest in the private equity field so far this year and comes at a time when confidence is rising that the appetite for initial public offerings is starting to come back. Indeed, eBay’s fallback plan was to float Skype in 2010, and although in this case the vendor regarded a bid in the hand as better than two in the bush, it is clear that the exit possibilities for private equity firms are slowly but steadily becoming unblocked.

To be sure, the Skype acquisition is small beer compared with the size of the transactions that were being taken on up to a couple of years ago, measured not in billions but tens of billions, like Silver Lake’s own USD11.3bn acquisition in 2005 of business software firm Sungard Data Systems.

Analysts note that whereas up to 2007 private equity firms were starting to target the biggest public companies, today the emphasis is more on carve-outs of specialist businesses from diversified groups as well as smaller firms that were overlooked in the heat of the boom. And while the Skype acquisition may have received some bank financing, most purchases continue to be made mostly out of equity. Still, for a sector that a year ago was on its knees, the deal marks an important step in its slow journey back to health.

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