Saudi Arabia helping to take Electronic Arts private
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Video game maker Electronic Arts on Monday agreed to taken private in what would be the largest leveraged buyout ever, by Saudi Arabia's Public Investment Fund, Silver Lake Partners, and Jared Kushner's Affinity Partners.
Why it matters: This might be just as much about geopolitics as it is about cashflow from the next iteration of Madden NFL.
- Saudi Arabia has pushed hard into gaming, including the $4.9 billion Scopely takeover and an existing 9.9% stake in EA that it will roll over into the buyout.
- Part of this is economic diversification for the oil-reliant Kingdom, but part of it also is about global influence. Many of the world's young people speak gaming as their second language, and these deals give Saudi more direct access.
By the numbers: The total deal value is $55 billion, or $210 per share in cash.
- That represents a 25% premium to where EA shares closed last Thursday before WSJ scooped the deal, and more than two times where they traded in mid-January.
- The three equity sponsors will contribute $36 billion, including the PIF rollover, while JPMorgan committed $20 billion of debt financing. EA has just $2.2 billion of debt currently on its books.
The intrigue: The equity sponsors will fund the deal "entirely from capital under their respective control."
- Silver Lake is investing out of a $20.5 billion fund closed in early 2024, while Affinity is investing out of a $3 billion fund raised even earlier (and partially funded by PIF).
- Or, put another way, it would seem that PIF must be writing the largest check (and is listed first in the press release).
Catch up quick: The current record-holder for largest leveraged buyout is TXU at $45 billion, which included $13 billion of assumed debt. The EA deal is obviously larger, although TXU maintains its crown if dollars get adjusted for inflation.
- Silver Lake has some historical ties to EA, via former EA CEO John Riccitiello. He left the gaming giant to launch a new private equity firm with two former Silver Lake partners, and later led another gaming company that took a Silver Lake investment.
- A source adds that Silver Lake "has watched and admired [EA] for a long time."
- The largest gaming deal ever came two years ago, when Microsoft bought Activision Blizzard for $69 billion.
The big picture: The gaming industry is undergoing seismic shifts, and EA has watched its revenue flatten as digital upstarts like Roblox have taken market share.
- Nonetheless, it still has a ton of venerable titles in a hits-driven business, including The Sims and Battlefield.
- "EA Sports FC is among the most popular games worldwide," says Stephen Totillo, my former Axios colleague and author of Game File. "In the U.S., the Madden and College football games sit near the top of the charts."
The bottom line: Game on!
