PE group dials up Skype

Contact: Brenon Daly

Just a month after we speculated on an unconventional home for Skype Technologies, eBay found a rather unconventional home of its own for its VoIP subsidiary. Rather than go to Cisco, which is what we suggested as an (admittedly) far-flung idea, Skype has landed in a portfolio of a consortium led by tech buyout shop Silver Lake. Terms call for the group (Silver Lake, along with venture firms Index Ventures and Andreessen Horowitz, plus the Canada Pension Plan Investment Board) to hand over $2bn for two-thirds of Skype. EBay, which acquired Skype four years ago, will own the remaining one-third stake.

In most markets, a multibillion-dollar carve-out of a noncore asset led by a private equity (PE) firm would hardly be called ‘unconventional.’ (In fact, one could argue that type of transaction is precisely what PE firms should be doing.) But today’s market – even with the recovery that we’ve had – is hardly a healthy one. The equity markets have rallied, but investors – including the big investment groups that back the PE firms – are still skittish. Add to that, debt is still tough to come by. Those are the main reasons why buyout shops have been largely sitting on their hands recently, making a $2bn deal by a PE consortium a relatively unusual event.

Consider this fact: the Skype carve-out is the largest tech PE deal since May 2008. In fact, it accounts for almost half of all tech spending by buyout shops in 2009. So far this year, we’ve tallied 50 transactions that have an aggregate announced deal value of just $4.6bn. That’s one-third the amount during the same period last year ($13.1bn), and a mere fraction of the total the buyout barons spent during the same period in the boom year of 2007 ($101bn).