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