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Silver Lake revels in $8.5bn Skype exit

Technology-focused Silver Lake Partners and its fellow investors in voice-over-internet protocol business Skype are set for a huge return following the company’s sale to technology group Microsoft.

Silver Lake Partners has scored “one of the most successful private equity exits in history”, with the sale of Skype to Microsoft for $8.5 billion, according to a firm spokesperson.

The mature tech-focused private equity firm led an investor consortium which acquired a majority stake in Skype from online marketplace eBay in 2009 for $1.9 billion, valuing the business at the time at $2.75 billion. eBay retained a 30 percent holding in Skype following the 2009 buyout, but has now fully exited the business following the deal with Microsoft.

Silver Lake held 40 percent of the business, with venture capital firm Andreessen Horowitz  holding 3 percent, and the Canada Pension Plan Investment Board 12 percent. The remaining 15 percent was held by the company’s founders, Niklas Zennström and Janus Friis, and other parties, according to a spokeswoman for Silver Lake.

The investor consortium has more than trebled its money in just 18 months, according to the spokeswoman, who characterised it as “one of the most successful private equity exits in history”.

Skype’s owners had been pursuing an initial public offering as a means to exit their investment, having initially filed for an IPO in August last year, but chose instead to sell the business to technology giant Microsoft. This decision was reached despite mooted interest from rival technology companies Facebook and Google, according to press reports. At the time of its IPO filing, Jefferies & Co analyst Youssef Squali estimated the company was worth $3.7 billion to $4.7 billion, far less than the price eventually obtained from Microsoft.

Egon Durban, managing director of Silver Lake, said in a statement: “We are thrilled with Skype’s transformation during the period of our ownership and grateful for the extraordinary commitment of its management team and employees. We are excited about Skype’s long-term future with Microsoft, as it is poised to become one of the world’s most dynamic and comprehensive communications platforms.”

Microsoft said in a statement: “Skype has made impressive progress over the past 18 months under Silver Lake’s leadership, increasing monthly calling minutes by 150 percent, developing new revenue streams and strategic partnerships, acquiring the intellectual property powering its peer-to-peer network, and recruiting an outstanding senior management team.”

Skype will become a new business division within Microsoft, the company said, with Skype chief executive Tony Bates assuming the title of president of the Microsoft Skype Division, reporting directly to Microsoft chief executive Steve Ballmer.