Silver Lake inks second China deal

The mature technology investor will pay $124m for a controlling stake in digital marketing company Allyes.

Silver Lake Partners will pay $124 million for a 62 percent stake in Allyes Online Media, a Chinese digital marketing company whose clients have included Sony, Pepsi and Chrysler.

The deal marks Silver Lake's second in China. In March, the firm paid $40 million for a 13 percent stake in NASDAQ-listed technology company Spreadtrum Communications. While it doesn't typically do small minority stake deals, Silver Lake's Asia head, Ken Hao, previously told sister magazine PEI Asia the firm would slighlty adjust its strategy as appropriate to the market.

“In selective situations, particularly in China, we need to be more flexible on deal size and smaller deals may be the only way to invest in these companies. At Silver Lake we are agnostic on deal structure but religious on capturing deal value,” he said. 

Silver Lake will acquire Allyes from its parent company, Focus Media, a NASDAQ-listed Chinese digital media group. Other, undisclosed shareholders of Allyes have also agreed to sell their equity ownership to Silver Lake, according a regulatory filing. No further information on the deal was disclosed.

At Silver Lake we are agnostic on deal structure but religious on capturing deal value.

Ken Hao

Focus Media said the sale would enable the company to concentrate on its core media advertising platforms, including LCD display networks, poster frame networks, in-store networks and movie theater networks.

Founded in 1998, Allyes provides interactive marketing services focused on internet advertising technologies, online media service agencies, and performance-based marketing to companies. Clients have included China Merchants Bank and Chinese online retailer Taobao, according to the company’s website.  

Online advertising in China has been driven by strong economic growth and a rapid increase in internet penetration. A statistc from iResearch, a Chinese internet research center, cited in Silver Lake's statement said the market size of China’s online advertising industry reached more than RMB20.7 billion (€2.34 billion; $3.06 billion) in 2009, up 21.9 percent from 2008.

Silver Lake is not the first private equity firm to have shown an interest in Allyes. Before its acquisition by Focus, the company was invested into twice by China-focused firm IDG Capital Partners: once in 2000 and again September 2005. The second investment was in collaboration with venture capital firm Oak Investment Partners and was valued at $30 million. The two firms exited Allyes when it was purchased by Focus Media in 2007 for $225 million in cash and stock.

Silver Lake closed its third buyout fund in March 2008 on $9.3 billion, slightly below its target of $10 billion but more than double the size of its predecessor vehicle. The firm’s mid-market investment arm, Silver Lake Sumeru, closed its inaugural fund on $1.1 billion in May 2008 after roughly 11 months in the market. It also has a technology credit-focused investment arm. Co-founder Jim Davidson recently agreed to an exclusive interview with PEI, in which he discusses the firm's evolution and position for future growth.

Law firms Kirkland & Ellis and Jun He Law Offices, alongside PricewaterhouseCoopers, advised Silver Lake on the Allyes transaction, while Latham & Watkins and FangDa Law Partners advised Allyes on the deal.