Explainer: What you need to know about the Silver Lake deal
Who are Silver Lake?
Silver Lake are US fund managers who specialise in making investments in privately owned technology companies. They have about $140 billion of assets under management, including stakes in Manchester City Football Club, UFC, IMG (a global sports and event management company) and the Madison Square Garden Group (which manages sports teams such as the New York Knicks).
What exactly is it that New Zealand Rugby are selling to Silver Lake?
A new company will be set up — called CommercialCo — and this will contain all NZR’s revenue-generating assets, such as broadcasting, sponsorship, ticket sales, merchandise, licensing and digital properties. Silver Lake have determined the value of this company to be worth $3.5b and they will initially invest $200m to hold what will be a 5.7 per cent stake in CommercialCo.
Why does a US investor want to buy a stake in NZR?
Silver Lake believe that rugby is a growth sport and the All Blacks brand has the ability to make considerably more money than it presently does.
They think they have the skills, connections and knowledge to help New Zealand Rugby squeeze more out of traditional revenues such as broadcasting, sponsorship, merchandise and match day, and also use their links into the tech world to create income from virtual signage, E-sports, gaming, e-commerce, content streaming and data packaging. They are forecasting these new initiatives will bring in a total of $76m over the next five years.
How does NZR intend to spend their windfall?
A total of $37 million will be distributed to provincial unions ($20m), Ma¯ori Rugby ($2m), clubs ($7.5m), the Rugby Players Association ($5m) and other stakeholders such as the Rugby Foundation.
A further $38m will be invested as working capital for CommercialCo — money to hire personnel, explore initiatives, etc. NZR will also invest and safeguard $29m in what it calls a Legacy Fund — which will be exclusively used to bolster and improve the community game.
NZR will put $151m into cash reserves. About $8m will be spent on the consultancy fees (legal and investment bank advisers) attached to the deal.
What return will Silver Lake get on their investment?
For the first three years, Silver Lake’s investment will be a convertible note — which effectively means it will operate as a loan, returning them four per cent per annum. That note will then convert into an equity stake in 2025.
The final size of their equity stake and subsequent future annual dividend will be known only after a separate capital raise takes place with domestic institutions.
How will this second raise work?
NZR will try to raise a further $100m by offering local institutions such as KiwiSaver funds, ACC, community trusts and iwi the chance to invest. No date for this has yet been set. If less than $100m is invested, Silver Lake will have the right to make up the difference. Silver Lake will also underwrite this funding round to ensure that at least $62.5m is raised.
In total, 8.58 per cent of CommercialCo could be owned by a combination of Silver Lake and local institutions.
Do we know how long Silver Lake will stick around?
Silver Lake will not be able to exit their investment for five years. When the time comes to exit, they can sell their stake back to NZR, or a third-party investor approved by NZR and RPA, or through a stockmarket flotation.
Who will run and govern CommercialCo?
Global recruitment agency Egon Zehnder will be tasked with finding a chief executive of CommercialCo. The new CEO will then be responsible for hiring staff.
CommercialCo will be governed by a nine-person board. The chair will be independently appointed — Egon Zehnder will be engaged to find the right candidate. Silver Lake will have two board directors, RPA one and NZR five, one of whom will be CEO Mark Robinson (pictured). At least two more of the NZRallocated seats must be NZR board directors and the other two seats can be filled independently.
What does this mean for the existing NZR board? The board will continue to exist and govern the sport as they currently do. But a condition of the Silver Lake deal being approved is that an independent review of NZR’s governance structure and process will be carried out to make sure it is fit for purpose.