Spending $29 billion! Saudi Arabia has almost "completely bought" EA

The Saudi Arabian sovereign wealth fund is completing its acquisition of the globally renowned gaming company Electronic Arts (EA), with the latest documents showing that it will hold 93.4% of the acquired company's shares, meaning this is the largest leveraged buyout in history, almost entirely funded by Saudi Arabia alone. This move has surprised observers, as sovereign wealth funds typically play a minority shareholder role in traditional acquisition deals.

According to documents submitted to Brazil's antitrust regulatory agency, the Saudi Public Investment Fund (PIF) needs to invest approximately $29 billion in new funds for this total $55 billion (including debt) transaction. The fund announced this acquisition in September last year in partnership with private equity firm Silver Lake, which focuses on technology investments, and Jared Kushner's Affinity Partners.

It is worth mentioning that this massive investment comes at a time when Saudi finances are becoming increasingly strained. The country's budget deficit for 2025 is expected to more than double to 5.3% of GDP, the highest level since the pandemic in 2020. Meanwhile, the PIF is facing funding pressures from numerous large domestic projects.

This highly concentrated shareholding structure highlights the significant financial risk that Saudi Arabia is taking on in this transaction, especially considering that the fund is also a major investor in both Silver Lake and Affinity Partners, further increasing exposure to investment failure.

Saudi-led Acquisition Structure

In this transaction, the acquisition consortium will invest $36.4 billion in equity and borrow $20 billion in debt. The PIF will transfer its existing EA shares into the new structure, valued at approximately $5.2 billion based on the acquisition price, meaning the fund needs to contribute about $29 billion in new funds to achieve the final 93.4% shareholding ratio. In contrast, Silver Lake and Affinity Partners will hold 5.5% and 1.1% of the shares, respectively.

This equity distribution is uncommon in the leveraged buyout field. Typically, sovereign wealth funds participate as minority investors in private equity-led transactions, where the latter has more expertise in closing deals and operating newly acquired businesses. However, in this transaction, the PIF is effectively taking on almost all of the financial responsibility.

It is noteworthy that the PIF is also a significant contributor to both Silver Lake and Affinity Partners, meaning that if the EA investment encounters issues, the fund will face multi-layered financial risks.

Intensifying Fiscal Pressure

Although Saudi Arabia is known for its deep pockets, the $1 trillion PIF is becoming stretched due to numerous domestic commitments. These commitments include costly large-scale projects, such as the futuristic city named Neom, and a series of new sports venues built for the World Cup.

In November last year, the PIF disclosed that it had sold off shares in over 40 publicly listed U.S. companies, continuing a trend of divestment that began in 2021.

Saudi Arabia's overall fiscal situation is also becoming increasingly fragile. This year's budget deficit is expected to soar to 5.3% of GDP, the highest level since the pandemic in 2020. According to data from the International Monetary Fund, although the country still has hundreds of billions of dollars in foreign exchange reserves and further borrowing capacity, the economy is expected to grow at a relatively fast rate of 4%, but oil prices, which are the main source of revenue, remain persistently low It is weakening its fiscal buffer capacity.

The scale and structure of this deal are indicative of the global private equity market. It marks a shift of sovereign wealth funds from a traditional passive allocation role to a more proactive holding investment strategy. For EA, being almost entirely held by a single sovereign investor means that the company's future strategy will be closely tied to Saudi Arabia's long-term economic vision.

This is also a significant bet in the gaming and entertainment sector following Saudi Arabia's substantial investments in sports assets such as professional golf and football leagues, reflecting the country's ambition to reduce its reliance on oil revenue through diversified investments. However, against the backdrop of increasing fiscal pressure, whether such a large-scale single investment is wise will test PIF's risk management capabilities