Earlier this week, a group of investors led by Silverlake Partners, a Silicon Valley-based private equity group, acquired 65 percent ownership in Internet telephony company Skype for about $1.9 billion in cash and $125 million in debt. The current owner, eBay, retained 35 percent of Skype, which was valued at about $2.75 billion. Skype was acquired by eBay in late 2005 for roughly $3.1 billion, but the final price turned out to be $2.6 billion.
The San Jose, Calif.-based auction company took massive writedowns because of its botched Skype acquisition. The investor group, however, didn’t disclose each individual partner’s contribution to the Skype deal. I made a few phone calls and have come up with estimated amounts contributed by various parties.
- Silverlake Partners: $1.48 billion.
- Canada Pension Plan (CPP) Investment Board: $300 million.
- Index Ventures Growth Fund: $70 million.
- Andreessen Horowitz: $50 million or a sixth of Marc Andreessen’s new $300 million fund.
The buyers paid about $5 per registered Skype user. Skype has 400 million-plus users. These are clearly big numbers, but so is the investment. One industry expert I spoke to said that the deal is priced for perfection and for investors, everything needs to go well. Skype is currently fighting a legal battle with its founders, Niklas Zennstrom and Janus Friis, who have sued the company.
And in order for this deal to pay off for its investors, Skype needs to accelerate its already red-hot revenue stream. According to Peter Falvey of Revolution Partners, an investment bank, with Skype likely to do revenues of between $600 million and $650 million, the current deal values Skype at about 4.5 times revenues.
This is good news! Now the Skype team can get back to the innovation we saw before the ebay acquisition.
Can’t wait to see the dev relations plan!! Skype is dead, long live Skype!
Does anyone have any real background on the intellectual property fight? Is it an EU versus US interpretation of intellectual property law? What does the dispute cover technically? Can Skype overcome it by moving to SIP for example?
Pointing to previous articles would be helpful. It feels like the elephant in the room that no one really wants to talk about.
Thanks for the great work.
Good questions. I’ve seen quotes attributed to Skype folks saying the company is putting a lot of resources into building around the Janus/Friis IP.
http://skypejournal.com/2009/07/skype-races-to-replace-joltid-p2p-by.html – This article defines the disputed technology, loosely, as “P2P technology”, and goes on to discuss what P2P technology does for Skype (in short, give Skype the world’s low-cost telecoms architecture). SIP-like functions may be part of this, but the patents are probably a lot broader than session control.
http://www.bloomberg.com/apps/news?pid=20601204&sid=ark5.p.p7yxA – In this article, a Skype rep says losing access to the Joltid technology would shut down Skype. NFW Silverlake invests in Skype without knowing this problem can be solved.
Thanks a lot for the additional links. I did click through Om’s previous posts too.
Any comments from more experienced readers with M&A or legal background would be appreciated.
Is this simply a bet by SilverLake and partners that their lawyers are better and pockets are deeper than the founders?
If they can solve the legal issue, I absolutely love the opportunity! I can come up with 10 ideas in 10 minutes on how to monetize Skype users at a rate that is more than $5 per head. They could blow out the CEBP/Telco 2.0 space.
Here’s a summary of the dispute and court filings from TMCnet (apologies for all of the pop-ups/ads, but the text is succinct and explanatory): http://www.tmcnet.com/usubmit/2009/04/01/4101944.htm
It’s perfectly logical that Ebay did not seek to acquire the rights to the underlying IP in order to avoid legal liabilities for KaZaA, Sharman, etc. I suspect it was a fairly straightforward discussion and tactic for Skype to sell the company to Ebay with a “perpetual” license back for the underlying technology. Only when Joltid (owned by JF/NZ) decided to terminate that license (citing breach/violation of terms by Skype [ie back-stab]) did it become an obvious [glaringly so] issue.
Also interesting, here’s an article from September 2005 which first points to potential concerns/issue about the IP (but no one paid much attention to it at the time): http://www.redorbit.com/news/technology/239324/court_wrangling_haunts_skypes_ragstoriches_story/index.html
And Meg wants to be governor of CA?
Maybe she’ll propose buying skype (again) to reduce driving in CA an save the environment.