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Players and grassroots rugby will lose out if NZ Rugby signs a deal with a US private equity giant, which will focus solely on maximizing shareholder return, a former investment banker has claimed.

Silicon Valley private equity firm Silver Lake is offering NZ Rugby $387.5m for a 12.5% ​​stake in a newly created NZ Rugby entity called Commercial LP, which would control NZ Rugby’s business interests .

NZ Rugby is keen to sign the deal and has the backing of 26 provincial unions, but has yet to get the backing it needs from the Rugby Players’ Association.

Meanwhile, Silver Lake is embroiled in two separate US stock trading controversies where he sold shares of companies shortly before their stock prices crashed following negative news. made public.

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Kōura Wealth managing director Rupert Carlyon, who previously worked for UBS and handled private equity during his 10 years in investment banking in London and Auckland, said there were risks for NZ Rugby to choose a private equity firm over an alternative option, such as an initial public offering (IPO), as presented by Forsyth Barr (who values ​​NZ Rugby at $3.8 billion over the Silver Lake valuation of approximately $3.1 billion).

Private equity firms tend to be short-term investors seeking a high return on capital, typically looking to double their return on investment over a three to five year period, most of which would be achieved at the time to sell the investment, he said.

“The exit is going to be the main comeback for them,” Carlyon said.

“Fundamentally, these funds are not created to be long-term capital holders.”

Silver Lake wants to own 12.5% ​​of a newly created NZ Rugby entity called Commercial LP, which would control NZ Rugby's business interests.

Getty Images

Silver Lake wants to own 12.5% ​​of a newly created NZ Rugby entity called Commercial LP, which would control NZ Rugby’s business interests.

When the time came for Silver Lake to come out, NZ Rugby would have to buy it back if they didn’t agree with the buyer, he said.

“And I just don’t see NZ Rugby having the money to do that.”

Silver Lake would be in for a tough negotiation and the contract would be structured to give it “huge control”, he said.

Kōura Wealth managing director Rupert Carlyon says private equity knows how to make money for them and their investors.

Provided

Kōura Wealth managing director Rupert Carlyon says private equity knows how to make money for them and their investors.

Silver Lake would focus all of its attention on the All Blacks, to the detriment of other areas of rugby such as the players and the national game, he said.

“Silver Lake won’t care at all.

“Private equity is only about themselves.”

If the Silver Lake deal is approved, $39m would go to provinces and the New Zealand Maori board, and $100m would go into a long-term ‘legacy fund’ that NZ Rugby wants to set up. place to invest in community rugby.

Carlyon said that while Silver Lake would manage the stake in NZ Rugby, he would not own it per se, but rather would be owned by a fund made up of money from institutional investors.

Players' Association boss Rob Nichol says people are questioning NZ Rugby's right to sell a stake in the All Blacks.

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Players’ Association boss Rob Nichol says people are questioning NZ Rugby’s right to sell a stake in the All Blacks.

New Zealand Rugby Players’ Association chief executive Rob Nichol said players and others he spoke to wanted to know what final game Silver Lake had in mind for their participation in NZ Rugby, if the deal had to materialize.

He did not believe Silver Lake would seek to retain a stake in NZ Rugby long term.

“I don’t think it’s the private equity game,” Nichol said.

He said people were also questioning NZ Rugby’s right to sell a stake in the All Blacks.

“Do we even have the right to sell this? Aren’t we just jersey keepers?

NZ Rugby’s proposal comes as Silver Lake is defending itself in a US class action lawsuit for insider trading, where it is one of three shareholders who allegedly sold US$246 million (NZ$343 million) of actions of satellite operator Intelsat while in possession of non-public material. information, avoiding more than $185 million in losses at the end of 2019.

Meanwhile, SolarWinds, a technology company owned by Silver Lake, is under investigation by the U.S. Securities and Exchange Commission after its biggest investors, Silver Lake and Thoma Bravo, sold 315 million dollars worth of stocks days before a cyberattack was revealed. the Washington Post reported in March.

The attack sent SolarWinds’ stock price plummeting and Silver Lake and Thoma Bravo averting losses of more than $100 million. SolarWinds, Silver Lake and Thoma Bravo said they learned of the security breach after the sale agreement was completed, the To post noted.

Silver Lake was also involved in a high-profile case in 2016 where a US court ruled that Silver Lake had undervalued its US$24.9 billion Dell buyout by around 22%. And in 2014, it paid US$29.5 million to settle a claim that it suppressed collusive competition in buyouts from 2003 to 2007, and therefore paid shareholders less per share for their shares.

Silver Lake declined to comment.

He also declined to say how long he would retain NZ Rugby’s stake and what conditions would be in place regarding the resale of his share, should the deal go ahead.

A spokeswoman for NZ Rugby said it had carried out “thorough due diligence” on Silver Lake and all other bidders as part of its process to find an investor and was advised by global investment bank Jefferies and the lawyers Simpson Grierson.

This included an independent assessment based on strict environmental, social and governance criteria, she said.

“We are sticking to this robust process and selecting Silver Lake as our partner.”

Simplicity managing director Sam Stubbs says private equity firms try to extract the maximum value from investments in a short period of time.

LAWRENCE SMITH / Stuff

Simplicity managing director Sam Stubbs says private equity firms try to extract the maximum value from investments in a short period of time.

Simplicity chief executive Sam Stubbs, who has been involved in private equity for 20 years, said the stock trading business should alert NZ Rugby.

“Silver Lake is an aggressive investor, make no mistake about it,” Stubbs said.

NZ Rugby was selling ‘some of the nation’s emotional silverware’ so they would want to make sure it went to the right buyer, he said.

“This is such a sensitive national asset that your default position should be that you’d rather an unknown partner not buy it.”

Silver Lake had no emotional investment in the proposal, he said.

“Silver Lake is in the business of making money. I don’t think it’s in the business of loving rugby.

He said Forsyth Barr’s proposed initial public offering, which would allow the public to buy the game, would appeal more to New Zealanders.

Stubbs said it would be unusual for private equity firms to hold a long-term position on an investment.

Carlyon said it’s not uncommon for private equity firms to be sued, especially by bereaved minority shareholders who are filing a class action lawsuit.

“If you’re looking for a big global private equity fund, there will be lawsuits everywhere,” Carlyon said.

The top priority for private equity firms was to make money for themselves and their investors, he said.

“So that means that every once in a while other people will be hurt a little bit along the way. It’s kind of capitalism and that’s the business.

Silver Lake has over $79 billion in combined assets under management. It was launched in 1999 as a specialist company focused on investing in technology companies.

His portfolio generates more than $191 billion in revenue a year and includes stakes in Twitter, Airbnb, Dell, Expedia, Motorola, New York Knicks, the UFC’s parent company, and City Football Group, which owns champions Manchester City. of the English Premier League.

Silver Lake’s founding director is Egon Durban, who serves as co-CEO alongside Greg Mondre.

Forbes The magazine claims that Durban owns around 17% of Silver Lake.

Durban and Mondre joined Silver Lake in 1999 and Forbes each is estimated to be worth US$1.3 billion. Both previously worked as investment bankers, Durban at Morgan Stanley and Mondre at Goldman, Sachs & Co.

Durban belongs to “two of the most exclusive and secretive private clubs in the world” – the Augusta National Golf Club and the San Francisco Golf Club, according to a 2020 US court ruling.