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Recently, we saw reports that video game giant Electronic Arts was going to go private after a $55 billion deal where
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it was acquired by the group including Silverlake, Affinity Partners, and maybe more interesting, the Saudi public
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investment fund. Bourju Esmer is a senior lecturer in finance at the Wharton School as well as co-director of
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the Harris Family Alternative Investment Program and she joins us to discuss this
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move. Bouju, great to talk to you again. How are you? Very good. How are you, Dan?
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>> I'm good, thank you. So, when you hear I mean, you talk a lot about these types
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of deals. But when you see this one and I guess especially because the Saudi public investment fund already was an
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investor but taking a larger stake in this, what were your first thoughts about the deal?
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>> Uh, two things jump out immediately. One was the scale. As you said, it's a $55
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billion transaction and if completed, it will be one of the largest leverage buyout deals of all time. Uh the leader
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now is almost $50 billion buyout of TXU in but it was back in 2007. So that's
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exciting. You mentioned the sponsors. So we have silver lake which has long history of investing in the tech sector
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and the co-CEO Durban uh had his eye on acquire acquiring EA uh for years and their friends uh his friends with Andrew
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Wilson the the CEO of EA then we have President Trump's son-in-law Jared Kushner as you said a definitive
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partners uh they have existing relationship with PIF and uh maybe the most exciting part is Saudi the uh
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sovereign wealth fund public investment fund. Uh they already had almost 10% ownership in EA. So they are not uh
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strangers to to this company and over the years they ramped up their investments in gaming, sports,
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entertainment globally. So there's a clear ambition there. They want to influence influence cultural assets and
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they want to move beyond oil. Uh what was your first thought? uh you >> that was that was the the element about
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sports and obviously I follow the world of sports and business pretty closely. I
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I found it very interesting to see the Saudi public investment fund make all of these moves that they have made in the
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last few years in and around sports. You can go back to the World Cup a couple of
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years ago and the role that they had in in that and some of these other moves. And I find it interesting that this is
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not making a move on a team or an event but it's making a move on an entity as
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you kind of alluded to a cultural entity in and around the world of sport. >> Yes. So they new uh they launched
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Olympic esports games which was a very interesting move. They announced $35 billion allocation to expand its
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footprint in the video games industry through their subsidiary SE games group. And they invested in Scopy, Niantic,
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ESL, Faceet, Nintendo, Capcom, Nexon. They're all over the world. And they are
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heavily investing in in uh video games industry. But EA is is a bit different. It's a fascinating asset. It's not just
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a sports game publisher, right? Its portfolio stretches across uh simulation, shooters, narrative titles
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and large live service platform which is more than 70% of their revenue. And it's
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great the ultimate team modes they are material to their business. Uh you might be more more familiar with this. But for
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our listeners maybe in the ultimate team mode the players can build their own custom teams. They can use digital
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cards. They can earn these cards. that they can buy these cards and it's addictive uh because there's collecting
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competition chance. So it's a bit like sports trading cards meets fantasy sports and they have all these IPs as
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well. Uh so all of this makes EA Sports a very interesting asset to buy for sure.
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>> So it's so it's not just about what they have right now. It's about what they
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could potentially bring forward over the next decade or so. >> Exactly. So they can so they have the
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football the FC uh they have the Madden college football these are very draable yearround engagement engines which is
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great and we talk about the ultimate team style so that's great for monetization but there's also room to
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deepen their live operations they can constantly update the games with new challenges they can have special events
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they can uh build more social features they can build on creator tools so there there is room for improvement and
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there's expansion. So bigger global tournaments, events, they can do cross media projects um and they can they can
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go after underpenetrated regions. So there there's a lot of opportunities there. So, but taking it private in this
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move, take us into that side of the story as to just the importance that companies have
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>> when when they take a a a larger well-known company private for whatever
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period of time it is and what they expect to see, I assume at some point down the road to bring it back public.
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>> Uh, great point. First let me tell you just because a company goes private
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that's not going to be the magic touch. uh all of a sudden the country uh company's not going to get better, but
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there will be less quarterly pressure which is something uh video game companies have been experiencing
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recently. There there have been major layoffs as well but becoming private maybe they will be able to fund riskier
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bets and uh re they can replplatform major franchises and they don't need to
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explain their every move to public market. So that's good. The other one is the concentrated ownership. So maybe
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they can rationalize their studio slates, maybe modernize pipelines. They can they might be able to make uh
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sharper capital allocations. The last thing is the ecosystem synergies because the new owners they already sit across
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gaming, esports, media uh which could amplify EA's uh IP across film, TV, events, new regions. Um, and let me let
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me remind everyone the buyout explicitly spotlights IP monetization beyond gains
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which is where they see the upside about the IPO about the exit. That's important. So in the in the buyout
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world, once you complete the deal, sign the deal, you don't say congrats. You
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say job well done like you need to wait four, five, six years to see whether it was actually a successful deal or not.
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with a large company like this probably IPO is the most uh most plausible exit. Um and this is what Silver Lake did with
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Dell. It was a $25 billion deal back in 2013. Uh they took the company private back to public market uh about in about
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five years. So that that is expected. IPO window has been tight. It could open up in five years. But maybe then uh PIF
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will say we don't exit. Maybe silver silver lake and a finta partners will exit but pif might sit on this
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investment for a longer period of time because of uh the fact that it's a servant wealth fund. So
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then my question is then does this open the door for more similar type of deals and I say it because you have not only
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the public investment fund and you have silver lake and affinity but there is obviously an interest in technology and
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we know how technology is kind of controlling a lot these days especially with AI that these are the types of
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deals that companies will look forward to in the future ones where there is a known quantity a known success
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But you have these other entities that could potentially be built out in the future.
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>> Uh that that is exactly right. So this is first a positive step. Um we are
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seeing more deals in the the buyout world and and the M&A world. So that's
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good. And uh there's a lot of interest in gaming and sports in general. So one
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thing about EA so their stability and upside uh gives uh them uh crossplatform opportunities creator-driven AI enhanced
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experiences as well and we will see how it's going to go but Microsoft bought
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Activision Blizzard a couple of years ago as well. So it will be surprising to see more deals happening in in this
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space and tangent space. >> Bourju great to talk to you again. Thanks for your time and your insight.
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All the best. >> Thank you Dan. Thank you, Bourju Essmer, a senior lecturer in finance here at the
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Wharton School.