Newscasts - EA’s M&A high score

Firm Capital Mortgage Investment

09/10/2025 08:20

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Description: Saudi’s sovereign fund and buyout shop Silver Lake are upending conventional M&A wisdom with their $55 bln deal for the videogame developer. In this Viewsroom debate, Breakingviews columnists discuss whether it makes sense.

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Video Transcript:

The views expressed on this podcast are those of the participants, not of Reuters News.

So, it's surprising because it's big, it's surprising because of the moment it comes in, and the answer to unlock some of those mysteries kind of lie in Saudi Arabia, really, I think. Video games are now serious business. Loved by teenagers around the world, and now, funnily enough, the Crown Prince of Saudi Arabia, video games are at the heart of a mega buyout. Last week, Electronic Arts, the developer of sports, shooter and life simulation games, agreed to sell itself for $55 billion to a consortium led by Saudi Arabia's Public Investment Fund and tech buyout firm Silver Lake Partners. The numbers are huge, and they seem to run counter to the relatively subdued M&A environment we've been stuck in ever since interest rates jacked up in 2022. The price tag includes a 25% premium, the $20 billion debt package is nearly seven times the company's EBITDA, and yet, it also implies an enormous $36 billion equity check. The deal made history. It's now the world's largest buyout, finally surpassing the $45 billion takeover of US utility TXU in 2007, just before, famously, the financial crisis kicked off and seemed to snuff out a lot of these big meaty buyouts. So, what's the audacious deal tell us about animal spirits in the world of private equity? Does it make sense? Or are buyout barons repeating the mistakes of the past? All of this and more in this week's Viewsroom. It's Jonathan and, unfortunately, Aimee can't be with us this week, but you are very welcome back to the Viewsroom. The weekly podcast that invites you, the listener, to a lively debate about the knottiest topics in finance. Today, we're going to jump right in and introduce our guests. Liam Proud is something of a private equity guru at Breakingviews and also an associate editor in London. George Hay is our EMEA Chief and also based in London. George, Liam, you are very welcome back.

Hey, there.

Great to be here.

So just to level set here, do you guys play video games?

I was always the friend who was invited not to play after tapping a few buttons randomly as a child. And they were sort of- so I spent a lot of time watching other people play video games as a child but, no, basically.

Got it. Classic experience. I also was possessed of friends who had PlayStation 2s, and I did not. George, I'm presuming you're in the same bucket.

Yes. I'm not really a gamer. Yes. Super Mario 3 on the NES in the early 1990s and a bit of Street Fighter in the late 1990s when I was a student, but since then, not really. Anyway, we're not really marking ourselves back as experts though.

So, we've got a panel of absolute experts here to talk about this deal then. And obviously, Liam, fundamentally, what we're looking at is just another kind of big jump in what private equity is capable of doing after years in which it seemed like the top end of ambitions have kind of been cut back. It also sort of dropped out of the blue when everybody was still sitting around and waiting, saying, when are M&A animal spirits going to kick off again? Why were people so startled by this, do you think?

Yes, as I think you sort of hinted at, the context here makes it kind of weirder. I mean, this is really not the moment that you would have picked for the largest leveraged buyout ever. I think that's fair to say. We're in a moment where private equity really got itself a little bit overextended, I think, in the sort of 2021-era boom. The amount of assets they bought, they've really struggled to get rid of them. And there's been this kind of funk over the industry a little bit where people have been wondering, how can you get this cycle of selling companies in order to get money back to buy new companies? How can you get this wheel spinning again? And before we really had an answer to that question, you saw this kind of land out of the blue. So, I guess the question is, how is it possible? And that's sort of something that George has looked at a lot. I mean, it's really possible because of the involvement of the Saudi Arabian state investment vehicle, the Public Investment Fund. So, you've got Silver Lake, which is a big buyout shop. You've got PIF, the Public Investment Fund, which is putting up a huge amount of the money, it seems. And then you've got Jared Kushner, the President's son-in-law, who has a shop called "Affinity", who's putting up some cash as well. So, it's surprising because it's big, it's surprising because of the moment it comes in, and the answer to unlock some of those mysteries kind of lie in Saudi Arabia really, I think.

Yes, it's interesting. George, I wanted to get your take on that part of it specifically because when I think of how people had built their mental model of how we're going to get back to mega buyouts, there was some, I think, hesitancy or anxiety over the idea that big limited partners, so the folks who traditionally invested into buyout funds, and who had increasingly been tapped for these sort of big headline co-invest, so they were putting a bunch of money outside of the fund just straight into the deal, and they would just get straightforward economics on the buyout, that they were pulling back from that, that a bunch of folks in Canada and elsewhere felt that this wasn't really their area of domain expertise. And then on the other side, we had the Blackstones of the world building up these gigantic funds comprised of lots and lots of individual retail investors. And there was a feeling like that's where the muscle would come from. This is totally counter to that, right?

Yes, well, I mean, the PIF is kind of interesting beast. It's kind of like almost a $1 trillion assets under management. But in its earlier gestation in kind of 2017, 2018, they were doing kind of what you just referred to, like, they gave- the PIF gave $45 billion- or Saudi gave $45 billion to Masayoshi Son's Vision Fund, its first Vision Fund. And they didn't get particularly great returns from that. And the whole kind of thrust of what the PIF is doing is rather runs counter to what this new deal is all about. In the last three or four years, you've seen the amount of their assets that are basically devoted to being invested at home, rise to the current level, which is it's over 80%. And there's a disconnect there because you kind of look at PIF and assume that all it does is invest in Newcastle United Football Club or golf or just loads of things that are very kind of visible to Westerners. But what it's actually doing and what it's supposed to be doing is kind of diversifying. It's like the cockpit of the diversification of the Saudi economy. It's the thing that is supposed to kind of drive that. And what the PIF has been doing is investing in companies, startups, and things like that at home in an attempt to do that. Now, the whole thing with this big deal is that it's not a kind of complete 180 on where they were because one of the things they're trying to do at home is creating this kind of gaming industry and owning one of the world's biggest gaming companies, you know, it's not like that runs counter to it. But what this really is, is the way that they're looking at this, seemingly, is they see this as a big buyout, a big deal that they're investing in, and they think they can make a decent return on it. And that is, like, the driving force in it. And as I say that kind of it runs slightly counter to what you would have expected, what I would have expected them to do, especially at a time like this when oil prices aren't as high as they have been, and that's the way that Saudi gets money.

Just to flesh out something that you picked up on, Jonathan, on the environment for, you know, limited partners, the people who put money into private equity funds. I mean, I spoke to someone, you know, not at Silver Lake, a different big buyout fund last week and sort of like, did you understand that the Saudis were in the market for these kinds of things? And their answer was absolutely not. Like, the message we had got from Riyadh for the last few years was like, "This isn't us anymore, guys. We don't do this, you know. We sort of- we're trying to do domestic infrastructure, develop the economy, et cetera. We're not giving buyout barons money whenever they like to go off and do these deals. That's not our strategic remit." So, I think there are a lot of people in the private equity world that were very surprised to see that that amount of money is available from PIF for this sort of thing.

Yes, I think it speaks to- we mentioned Masayoshi Son, Egon Durban of Silver Lake, I think goes a little more under the radar but it's basically of a similar stature when it comes to being able to pull together these heavy hitters, both on the financing side out in kind of, you know, sovereign wealth land, and also over on the technology side, right? He's close to Musk. He was around, you know, when Broadcom was being built up, like Silver Lake helped build that into the gigantic semiconductor Goliath it is today.

Michael Dell.

Dell, of course. Can you imagine? Because I think maybe it's worth taking a step back and pointing out how crazy it is to have a $36 billion implied equity check undergirding this deal. Like, can you imagine any other firm being able to pull this together?

I can't and- I mean, I really- I think that's exactly the right thing to focus on. So just to put the numbers in context, you know, the total value of the buyout, including equity and debt, is $55 billion. You know, approaching $20 billion of that is debt. It's being handled by JPMorgan, they're going to syndicate that out- bonds, loans, et cetera. And then the remaining $36 billion, as you say, is equity. It's money that the actual investors are going to put in. Now, it seems like the Saudis are going to have to be good for at least half of that, including some shares that they already own. But that still implies Silver Lake putting, you know, kind of vast amount of money. So, to more directly answer your question, could anyone else do this? I can't think of anyone else who is quite as specialist as Egon Durban and Silver Lake in terms of tapping pools of wealth and orchestrating complex financings. And really what that makes me think is, well, what do they have planned? Because you don't tend to see Silver Lake just buy an asset and then sort of hope that it grows slightly more than the market and maybe we can get a few margin points out of it. They're quite like imaginative, right, Jonathan. I know you've spent a lot of time looking at them. So, I don't know the answer, but that is a thing, right?

Yes, because you edited me on a piece where we were looking at this tiny little deal, which I think frankly might have been part of Silver Lake's reported souring on smaller, punchier, maybe what you would think of as more traditional tech private equity plays at Vacasa, where, again, even though it was tiny, it felt like it really was an exemplar of the Silver Lake method that you see through Dell, that you see through VMware, that you see through a bunch of these other things even when they were taking a position in the debt of AMC Theaters, which is they build in a structural advantage to themselves that make sure that they take a super ordinary slice of the economics from these public company deals in a way that kind of, you might argue, kind of siphons value away from kind of independent public shareholders. Although, you know, to be fair, as Silver Lake will probably tell you, a lot of these companies do end up back in the public markets and do pretty well. But they don't really just do these vanilla big concentrated heavy buyouts without a plan. And yet, George, I know PIF owns another asset in this space, right? As far as you know, is there any plan to do something wacky here in terms of combining them, trying to drive synergies, trying to do anything like that?

Yes, well, I mean, that's an important context to this. And certainly, when this deal was announced, I thought that was just the play here. And it was- the company you're talking about is Savvy Games Group. That's the kind of entity through which most of the PIF gaming stuff is directed. And they did a deal to buy this company called "Scopely" a couple of years ago that owns "Monopoly Go!" which is an extremely popular global brand that's doing very well.

As in the Monopoly, the board game?

Yes, with Go.

It's with added Go.

With added Go. And they've also to kind of over egg the Go-ness, they have also picked up "Pokemon GO". So, they own all these brands. As I said earlier, they've got this kind of objective to create a gaming sector, not just like owning a whole load of cool things. They want to have a gaming sector, a thriving gaming sector based in Riyadh and based in the Kingdom. And that's what they want. But oddly enough, to your point, I mean, it may be that they mesh these things together with EA at some point in the future, but certainly at the moment, it's not obvious that that's what they're planning to do because without getting too inside PIF baseball, there's three main bits of the PIF, and there's a kind of more domestic focus bit, which Savvy Games Group is in. And this deal, the EA deal, is being done by the international investments bit, which is a separate chunk. And I don't think there's immediate plans to kind of these things together. So again, it's a bit more like what the PIF is trying to do is say, okay, this is just- "we've got the firepower to do this massive deal. It's vaguely kind of strategically aligned with what we want to do, and we're just hoping we get a kind of 20% IRR plus, you know, a big private equity return on our money. And that's the way they see this. And as we pointed out, that's quite a- you know, it's quite a risky, ballsy move to take.

Stem me through that the idea of, like, whether that return seems plausible because like you said, it's something that there may be various levers that can pull with this deal. And also, Silver Lake was involved in this company Unity, which is a provider of tools for developing video games. So, maybe you can begin to kind of stretch yourself to see, like, oh, is this some sort of platform player and you get vertically integrated, but they're existing in this market that already has these giant platforms for distribution that Microsoft owns, or Valve owns, or Epic Games own. So, it all seems a little bit complicated to me. Abstracting all of that away if you're just thinking about it by the book, you round the numbers on whether a plausible return here gets into that private equity-

Yes, well, Liam and I looked at this together. Like, I mean, there's two- there's basically, as with most buyouts, you look at the revenue growth that you're expecting or more to the point, the market is already expecting, analysts expecting. And then what margin, EBITDA margin you think you can get to. And, Liam, I mean, we- it kind of depends which way you look at it, but a fairly reasonable way would be to assume that it can only get to about 10%, right?

Yes, I think we thought if you just plugged in what the community of analysts who are experts on this stock, they thought this thing, EA will grow by roughly 5% a year up to 2030 and the margins- the profit margins, what they call the EBITDA margin won't rise very much. You do that and then assume that they would be able to sell the business at the same valuation multiple at the end of those five years, you don't get a buyout-style return. Obviously, they will want to be doing more to the business than that. That's really the question. I mean, you just spend a little bit of time kind of reading through the bank, the broker research on this thing and it does feel like- one of the big questions is the growth of this thing. It's got this stable of titles, one called "FC", which people might know better by "FIFA", soccer, football game. Easily the world's biggest soccer game. And I think there's a feeling that maybe the juice has come out of that title a little bit. The stock plunged by an enormous amount back in January when they said that they were expecting some low-single digit, mid-single digit decline in revenue for that franchise. There's a few others. There's like a shooting game. So there seems to be a very lively discussion in the market amongst people who watched the stock about whether or not they can really get this kind of stable of games kind of motoring again. I think that's something that Egon Durban's dealmakers will have to figure out really. And then any of the financial engineering stuff that you've written about, I think you've called it "sharp elbows" at Silver Lake in the past, Jonathan, that would come on top of that. So, that's really where the juice is going to be in this situation.

Yes. I mean, one thing I kind of add is just that- and again, this is more the Savvy Games Group end of things, but one thing that the Saudis are very kind of big on is not just the playing of the games by individual people, but watching of the games as well, eSports. And you have to a degree that seems baffling to anyone of my age. It's very popular for- it's a big thing, a global thing for people to turn up and watch games being played and like being at a football match. And, you know, they've had big events in Riyadh, and they want to kind of push that. And it may be that, you know, they can really supercharge that with this kind of deal. I'm not saying any of this stuff is impossible. It's just as Liam was saying, it's if you just look at, you know, the numbers, it's not absolutely- it's not a no brainer, sometimes we look at these things and they think, okay, this is obviously a really good deal and you're going to get a really good return. It's not. This one's much more up in the air, I'd say.

Right. Everything left to play for, I guess you could put it.

Well, indeed.

That's right. George, Liam, thank you so much for joining me on the Viewsroom.

Thanks.

Cheers.

Thanks for tuning in. This podcast was produced by Sheryl Pena in New York and Gregory Garner in Toronto. You can listen to a new episode of the Viewsroom every Thursday on the Reuters app or your favorite platform. And don't forget to tune in to our sister podcast, The Big View, every Tuesday, as well as the other great podcasts from the Reuters team. If you like what you heard, please follow the Viewsroom and let us know what you thought. We have a new email address where you can send us feedback, which is breakingviews-podcasts@tr.com. And check out our views on the biggest stories in business and finance every day on Breakingviews.com and Reuters.com.