AI fuels private equity’s biggest ever windfalls

One scoop to start: The US billionaire owners of Crystal Palace are exploring a sale of the south London football club, in what would make it the latest Premier League side to change hands in English football’s top flight.

And another: US private capital giant Apollo Global Management has selected Austin as the site of its second headquarters, picking the Texas city over two locations in Florida, according to two sources briefed on the matter.

In today’s newsletter:

• Bain, Silver Lake mint money on AI

• The secretive owners of KNDS

• Fox strikes a deal for Roku

Even private equity is minting money on AI 

Wall Street is rocking this year after the record initial public offering of SpaceX and the promise of more to come with the looming listings of AI pioneers OpenAI and Anthropic. 

The AI trade is showering money on investment banks and Silicon Valley, but one corner of the financial universe has been on the defensive: the private equity industry is facing muted returns, the hangover of trillions of dollars in unsold and ageing deals, and rising investor frustration. 

Making matters worse, the PE industry ploughed hundreds of billions of dollars into software businesses at nosebleed prices that are now unsellable due to the threat of AI technologies. 

But while the pain in PE is acute and has raised existential questions about the industry’s future, a select few blue-chip firms are in the process of earning staggering gains on deals benefiting from the rise of AI.

The FT reports that Bain Capital is in the process of minting one of the largest ever PE windfalls on Japanese chipmaker Kioxia, a deal once seen as a problem child that has become the firm’s most profitable investment, with a gain exceeding $15bn.

Bain carved Kioxia out of Toshiba in 2018 in Asia’s largest PE deal at the time. Toshiba, which invented Nand flash memory in the 1980s, was forced to sell its crown jewel following an accounting scandal.

Initially, the deal yielded mixed reviews. In 2020, Bain abandoned an attempt to take the company public and faced a memory chip market glut. 

Now, fuelled by AI-related demand and exuberance, Kioxia is Japan’s most valuable company and the carve-out deal is set to return close to 20 times Bain’s investment.

In the annals of PE, perhaps only Silver Lake’s takeover of Dell will rival Bain’s windfall in total gains. DD has documented the epic gains earned by the tech-focused PE firm and billionaire Michael Dell from the take-private of his eponymous PC maker in 2013. 

While both cashed out many billions from a complex journey of financial engineering and shareholder stand-offs, they held on to large stakes in Dell that have benefited from its soaring share price due to AI-related sales.

In 2024, Silver Lake co-chief Egon Durban told the FT the firm was holding on to a $10bn stake in Dell believing “it will be a massive beneficiary of the new AI tailwinds”. A subsequent more than doubling in Dell’s stock has turned the initial $1.8bn the PE firm invested in Dell into a $32bn gain, probably the greatest leveraged buyout deal of all time.

PE has also made enormous sums selling industrial services to the AI boom. 

KKR recently made 15 times its money on the $5.4bn sale of data centre supplier CoolIT Systems.

Advent International is in the process of earning one of its largest ever windfalls on Innio, a business it carved out of General Electric in 2018 for $3.25bn that sells power systems to data centres.

Its gains on the deal have eclipsed $10bn after Advent took the company public earlier this month at an over $20bn valuation, while co-investor Abu Dhabi Investment Authority has also made many billions.

The German scions preparing for an IPO bonanza

A group of secretive German families is set to enjoy a windfall of up to €10bn when one of Europe’s biggest tank makers goes public. 

Known as the “Wegmann shareholders”, the group owns 50 per cent of KNDS, which makes the Leopard and Leclerc tanks and is due to file for an initial public offering as early as this week.

Mostly descended from three German industrial families, the eclectic cast of characters includes a vet, a Mozart scholar and the owner of a shop selling mobility aids.

The shareholders own their stake through Wegmann Holding, which moved into tanks during the first world war and became part of the Nazi war machine in the second, using forced labour to manufacture tanks and gun turrets. (Wegmann Holding, whose website does not mention this history, declined to comment.)

At the same time as the IPO, the German government is seeking to acquire a 40 per cent stake in KNDS by buying a large chunk of the Wegmann shares.

Under the tentative plan, Paris, which owns the other half of the tankmaker, would also sell down its holding to leave it and Berlin with equal stakes, while the remaining shares would be freely floated.

The discussions have gone down to the wire. The French and German governments on Monday agreed a deal on governance and veto rights — including on executive appointments and technology sharing. 

But the families are demanding that Berlin pay above the market price determined by the IPO, which is targeting a valuation of €15bn-€20bn, according to three people familiar with the talks. The German government says it cannot justify that to parliament.

Lachlan Murdoch’s $22bn streaming deal

In further proof that there is nothing in the hit TV series Succession that can’t be matched by the real-life Murdochs, Fox on Monday embarked on a shareholder-shaking $22bn takeover of digital streaming pioneer Roku. (In the TV show, it was the tech-led GoJo that was buying media giant Waystar-Royco.)

The ambitious deal would give Fox broad distribution for its live news and sports portfolio across Roku’s 100mn global streaming households, as well as a valuable advertising business.  

The combined company will become the third-largest in US television by share of viewing.

The deal is also defensive, given the threat of TV distribution platforms being locked down by large tech groups such as Apple and Google, which would leave them to call the shots in a future where Fox is just an app on a carousel of content. 

Either way, the deal has spooked investors, sending Fox’s stock down more than 15 per cent on Monday. Fox said the acquisition would be accretive to free cash flow per share by the second full year after closing and would achieve $400mn of cost synergies. 

Allen & Company, whose annual “billionaire summer camp” will take place next month in Sun Valley, Idaho, is lead financial adviser to Fox on the deal.

There is little suggestion that the Murdoch-controlled Fox will have problems taking the deal over the line. 

The US Department of Justice is unlikely to kill it, although analysts at MKI Global Partners said that rivals were expected to ask for some behavioural remedies similar to the Comcast/NBCUniversal deal to ringfence competitors on Roku whose advertising and viewing data would otherwise be visible to Fox.

“Given that we would expect White House support, and competitors are likely to be reluctant to challenge, this could go [fast],” analysts said. “We would expect Fox to agree to ringfencing competitor data as did Comcast.”

Job moves

• Mudrick Capital Management has hired Adam Kaufman as chief legal officer. He joins from Muzinich & Co.

• Moelis & Company has hired James McEwan as a managing director in mergers and acquisitions in New York. He joins from Citi.

• Simpson Thacher has hired Zhiyan Cao as a fund transactions partner in New York. She joins from Debevoise & Plimpton.

• Paul Weiss has hired Linda Barrett as an executive compensation partner in New York. She joins from Simpson Thacher.

Smart reads

Master of the universe The New Yorker traces Ken Griffin and Citadel’s astronomical rise and the hedge fund billionaire’s run-ins with local elected officials. Does he have political ambitions of his own?

Caravan cockroach The UK’s Bob Bull built a caravan empire with loans issued during the golden age of private credit, Bloomberg reports. But a few years ago RoyaleLife came swiftly crashing down.

Pricing power AI companies won’t become profitable on dazzling technology alone. Making money also requires being able to extract decent prices from consumers, Lex writes, and they have faced recent challenges on that front. 

News round-up

Australian pharmacy group pulls out of $10bn talks to buy Boots (FT)

Legal AI start-up Legora to double headcount (FT)

Elliott presses Bunzl for buybacks after building stake (FT)

Chipmaker Nvidia seeks to raise over $25bn in first bond deal since 2021 (FT)

SpaceX shares gain for second day after blockbuster debut (FT)

Losers in ‘creditor-on-creditor violence’ left with crumbs (FT)