Photograph by Kris Tripplaar — Sipa USA/AP

Silver Lake helped create Avago, and then bought back in at the perfect time.

May 29, 2015

Private equity firm Silver Lake has done the unthinkable. It double-dipped a chip, and is earning big praise rather than scorn.

Ten years ago, Silver Lake and Kohlberg Kravis Robers & Co. KKR partnered to create Avago Technologies, through the purchase of Agilent’s A semiconductor business. They then took the company in public in 2009 and, by 2011,had effectively exited with 5x cash-on-cash returns. Not too shabby, except that Avago’s AVGO stock price at the time was in the $20’s and today it opened trading at $144.50 per share.

The stock boost is largely attributable to Avago’s decision to be a leader in the chip consolidation race, beginning with its $6.6 billion cash purchase of LSI Corp. in late 2013. And then, yesterday, Avago announced that it will acquire rival Broadcom BRCM for $37 billion in cash-and-stock — in which would be the largest ever merger of pure technology companies.

KKR might be regretting its earlier exit, but Silver Lake is continuing to clean up. The latter firm made a $1 billion convertible debt investment into Avago to help finance the LSI purchase. Were Silver Lake to convert its notes at Avago’s current trading price, the stake would be worth approximately $3 billion.

Pretty good year for Silver Lake partner (and Avago director) Ken Hao, who was already riding high from his role in Silver Lake’s Alibaba Group BABA investment. I guess he’s no George Costanza…

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