After taking much longer than it should have, New Zealand Rugby finally agreed to the structure of its private equity deal, monetizing part of its future cash flow with some changes to the original deal. announcement. So I thought it worth following up on my post last June on the subject.
Despite all the time that passed and the changed structure agreed, what became clear is that the main issue was not the transaction or the preferred investor, but the relationship between NZR and the players’ association, and I will come back to this in the summary.
Let’s look at the case first.
NZR’s enterprise value increased from NZ$3.1 billion (AU$2.9 billion) to NZ$3.5 billion (AU$3.3 billion), thanks to increased revenue streams from their sponsorship and television deals.
We have to acknowledge here that by creating an auction between eventual winner Altrad and undisclosed but rumored bidders Amazon and Land Rover, NZR not only struck a record six-year shirt sponsorship deal in the midst of a pandemic, but proved that the All Blacks’ have serious international influence that can be leveraged financially across multiple markets with the right partner.
This of course means that Silver Lake will pay a higher premium for their involvement, as will New Zealand institutions who will have the opportunity to invest.
Silver Lake will pay 200 million New Zealand dollars (A$187 million) for a convertible note which pays a yield of 4% and has the right to convert into shares in 2025. Ignore the jargon here, in short Silver Lake which was to be 12.5 percent 1,000 shareholder will now be a 6 percent holder at a slightly higher price.
New Zealand financial institutions will be offered the opportunity to buy NZ$100 million (A$90 million) of equity in the new trading vehicle and we can only hope that tranche finds a way to be offered to the New Zealand public.
All good so far, NZR is worth more on the back of its deals after June 2021, Silver Lake has to pay the premium for this increase in value, as do New Zealand investors who to be able to invest in NZD 100 million dollars (90 million Australian dollars) which will be offered in shares to New Zealand institutions.
Reading the New Zealand press this week, it seems the penny has finally dropped that Silver Lake is being brought on board to help NZR access global revenue streams they cannot exploit in isolation.
This isn’t new, but it seems to have been a convenient blind spot for those who chose to critique the original proposal.
Revenue streams in all areas of activity have seriously transformed over the past decade and sport cannot remain immune to these changes.
The traditional avenues of test match tickets, TV deals, merchandise and sponsorship simply won’t be enough to compete in the future sports market and access to online opportunities is key to being able to compete in the future.
I also noted how various media outlets and social media platforms praised the agreement for its governance structure with independent directors, the way NZR controls the entity and how there are three designated means for Silver Lake to go out if necessary.
I’d like to point out that each of these now standout features were part of the original deal as presented and nothing new, maybe a bit of homework earlier in the timeline rather than screaming that the sky is falling would have been in order.
A quick example from the last America’s Cup regatta shows the new opportunities for revenue streams that are opening up.
Organizers reported 64 million repeat social media users and generated a total of 994 million visits during the competition. 944 million! Neilson’s valued this social media profile at NZ$1.4 billion (AUD$1.3 million). A billion here, a billion there, soon we are talking about real money.
Now, while we shouldn’t expect the dark to generate anywhere near that kind of value, if your average annual income over the past few years is somewhere around the 180 million mark New Zealand dollars (A$168 million), there is no doubt that this is a truly transformative opportunity
There is an article in New Zealand Thing on VR game viewing which is truly amazing, and Manchester City (which Silver Lake has invested in) is about to launch it.
Without Silver Lake, NZR would be in the paid open market and competing with others for the technology and expertise needed to monetize its brand in these new markets.
With Silver Lake at the table, they have the expertise in-house with the added benefit of having a partner who now has their own money invested in the outcome. There’s nothing like having something to lose to focus on profitable results.
This brings us to the question of whether the NZ$100 million (A$90 million) tranche of capital offered to New Zealand institutions, and I assume then offered via funds to the New Zealand public, is a worthwhile investment .
If you look at NZR financial data from 2016 to date, there is no fundamental case for investing in the stock with a 5% dividend yield, especially in an interest rate world and rising inflation.
But let’s be honest no matter the underlying fundamentals this offer will fly away because we all want a chance to invest in the All Blacks and don’t really care if the stock certificate ends up being rolled, framed and hung on the back. from the bathroom door next to Ariadne and Judgecorp stocks that are there to remind you to never mess with the markets again.
Silver Lake is also being paid for underwriting this tranche and they will not be needed.
Ironically, the inclusion of Silver Lake in the main deal and the prospect of a dramatic and transformative shift in NZR’s corporate value going forward is what would interest me as a personal investor, but I would like to know what protections there are to stop NZ institutions that will have access to this NZ$100 million (A$90 million) from the sale of these shares to CVC or any other overseas buyer on the open market. Just a thought.
We can’t let the Players Association’s past views on the deal and Silver Lake pass to the Guardian without comment. Silver Lake kind of went from being the devil incarnate to being the best partner for the game going forward, remember those press releases?
Richie McCaw, Kieran Reid and Conrad Smith have all been deployed to raise questions about the original deal, all with seriously naive questions that have never been challenged while the NZPA has taken its fair share of public pot shots very direct.
They included the following assertions, that selling part of the All Blacks is selling part of our cultural history which is not for sale at any price, that there is a real risk of conflict of interest financial, that it will reduce the relationship between New Zealanders and their representative teams, and that there is a risk of cultural misappropriation because Silver Lake is an Anglo-American firm.
Silver Lake is now wholeheartedly endorsed by the Players Association as the right partner to move forward with; quite the change of position. I, for one, would like to see a point-by-point explanation from the players’ association on how each of the above concerns were addressed.
The cynics among us can point to the fact that the NZRPA has now secured the revenue-sharing deal they wanted locked up in these protracted negotiations, and perhaps suggest such a thing might be rude.
I mean, who would jeopardize a deal that is now accepted as the best deal for gambling in New Zealand, just to guarantee their own personal bottom line?
What is really clear to me is that NZR mishandled this process from the start.
They are well within their rights as the board that runs the game in New Zealand to make deals that will benefit the sport in the long run and I’m sure they will be right but the world is a place very different than they have been operating for years and engaging your stakeholders is essential in major transactions for entities of all sizes.
To have player representatives, provincial unions and the Maori board of directors around the table from the start explaining why they were going to put out a tender for a private equity partner and what they were waiting for, would have avoided months of grief.
To have all of these groups in one room while their advisers – investment bank Jefferies of New York (which has been appointed by World Rugby to do a similar deal for them) – explain exactly why Silver Lake is the preferred partner and ask Silver Lake to explain what they see as their added value to the game would have been extremely beneficial and totally transparent.
Instead the NZR chairman handed out tablets from the mount telling everyone this was the way to go without disclosing the process, and if you don’t know who Jefferies or Silver Lake are, it would be a scenario where all the worst fears could be unleashed, and they did – see the comments section of my first post for some examples.
An investment in two days of explanation would have ended months of poisonous bickering in the press and a public united front would have kept Joe Public from thinking the worst.
We are of course now awaiting final approval from the Maori Council and Provincial Chiefs before this deal is made, and if NZR and its teams, provinces and clubs are to continue to be successful at all levels, it really has to work.
Could we now focus on what is happening on the grass at international level now please, our men’s and women’s teams have serious performance issues which require immediate attention.