PE giant Silver Lake that backed Alibaba, Airbnb, others takes Reliance Jio closer to IPO
American private equity giant Silver Lake Partners' investment in Reliance Jio comes in less than two weeks of the Facebook deal.
Silver Lake has paid a 12.5 percent premium over Facebook. Its $750 million infusion in Jio Platforms takes the latter's valuation up to $65 billion, and also inches Jio a step closer to a prospective IPO.
That, in fact, has been RIL's endeavour since it started restructuring group companies in the last few quarters to invite strategic investments across its telecom, retail, and petrochemical businesses.
Reliance had announced earlier that it plans to make Jio a "net debt-free" entity in 2020. Almost 20 percent of equity stake could be offloaded from Jio Platforms. So far, Facebook has picked up 9.99 percent, and Silver Lake gets 1.15 percent.
Mukesh Ambani (Source: Facebook)
What the deal means for Jio
Putting the Silver Lake deal in perspective, Sanchit Vir Gogia, Founder and CEO, Greyhound Research (a tech research and advisory firm) says,
"This will add pace to the evolution of Jio since it allows them the ability to go a fresh investment cycle. Intent here is clearly three-fold: debt reduction and overall profitability; equity dilution at tech valuations; and sentiment uptick with global names. Jio Platforms should, in theory, get listed sooner than later – and that should dramatically change valuations."
Silver Lake, on the other hand, gets an opportunity to emulate its other successful investments in global technology companies. It has approximately $40 billion in combined assets under management and committed capital.
The PE giant's enviable portfolio includes tech giants like Alibaba, Ant Financial, Airbnb, Didi Chuxing, Dell Technologies, Waymo, Twitter, Norton, and others. Interestingly, it had invested in Alibaba ahead of its successful IPO in 2014.
Egon Durban, Co-CEO and Managing Partner of Silver Lake said of the Jio investment,
“Jio Platforms is led by an incredibly strong and entrepreneurial management team who have brought extraordinary engineering capabilities to bear on bringing the power of low-cost digital services to a mass consumer and small businesses population. The market potential they are addressing is enormous."
The partnership is also being seen as a "hybrid opportunity" that will help Reliance build synergies between online and offline operations.
"This is not a digital opportunity alone. This is a hybrid opportunity, where RIL will marry its prowess is both domains," says Gogia.
"Silver Lake investment in Jio Platforms means their ability to build, launch and scale platforms like JioMeet that connect to eHealth and eEducation services that leverage traditional assets and businesses of RIL," he adds.
It is also likely to bring in new business practices at Jio, including newer board structures, governance policies, service plans and delivery, and management changes.
"Eventually, there could be a need to bring in professionals," says Gogia.
The recent investments further enable Jio network to make its pricing more competitive, thus intensifying the pressure on rival telcos like Bharti Airtel. Jio ended the March 2020 quarter with a subscriber base of 387.5 million, and profits of Rs 2,331 crore.
The deal is, of course, subject to customary regulatory approvals.