It was August 2023, and Matt Swain had five offers on the table for Triago, the company where he’d recently ascended to CEO. He’d built the mightily profitable franchise in an obscure corner of private equity called “directs”—essentially pairing solidly run businesses that wanted to sell, with family offices looking for outsize returns. Now, suitors comprising top banks from Spain and Korea, a leading U.S. private equity firm, a major Midwestern lender, and a giant Asian trading house were circling.
But as Swain weighed the offers, one stood out—from Bob Hotz, chairman of corporate finance and acquisitions chief at mid-market investment banking powerhouse Houlihan Lokey. He felt sure that Houlihan would provide the best home for himself and his team. So he was crushed when an email arrived: “We regrettably will withdraw from considering the purchase of Triago,” wrote Hotz, but noted that “you were the primary reason for our interest,” and graciously suggested they meet for a quick coffee at 9:20 the next morning.
Swain didn’t expect much. “I didn’t even wear socks with my loafers. I never wear socks at any casual, inconsequential meeting,” he recalls. “I just wanted to get veteran Bob’s advice on which offer to pick.” At breakfast, the hyperkinetic youngster quizzed the silver-coiffed, soft-spoken Hotz, who’s a half-century his senior. “Given the time limit, I was talking so fast I didn’t even touch my usual avocado toast. I asked Bob: ‘Which one is the right fit?’ And Bob does a total flip, and says, ‘I think we’re the best partner.’”
At 11 p.m. on Wednesday, Aug. 30, Hotz called Swain to declare he was in—but only on the condition that Swain leave his house full of guests on Nantucket and fly to London the Sunday of Labor Day weekend for a rapid-fire session of due diligence. Swain agreed and boarded the red-eye to Heathrow toting a bulging roller suitcase packed full of financials. By the following Friday, Houlihan Lokey had clinched the whirlwind purchase, reportedly for well over $100 million.
The marriage created a force to watch on Wall Street, between a whiz kid with a knack for dealmaking, and the giant mid-tier investment bank you’ve probably never heard of. In his early twenties, even before joining Triago, Swain beat the Wall Street pros in recognizing that the burgeoning wealth of family offices meant there was high interest in purchasing individual companies, rather than investing in “blind pools” of enterprises assembled by the private equity (PE) giants.
The founders of those family offices had often built and sold their own companies, and they and their heirs relished “kicking the tires,” instead of having a Carlyle or TPG decide for them. To satisfy that appetite among the super-wealthy, Swain developed a wide network of venturesome “independent sponsors,” operators that obtained letters of intent to purchase private, midsize businesses that did everything from making routine airplane parts to marketing Disney-branded souvenirs at a predetermined price.
That process where investors cherry-pick their own deals rather than, say, joining fund No. 7 of a PE colossus, is called “directs.” It’s existed for decades, but in his five years at Triago, Swain has proved the prime mover in taking the sector from backwater to big business, and became king of the realm. By Fortune’s estimates, drawn from industry data, the value of all direct deals, using the broad definition of single investments in private companies, will explode to something like $200 billion this year, multiple the number several years ago.
Still, “directs” have a way to go before they pose any sort of real threat to the PE giants. Though Swain has big plans, there has yet to be mass adoption by the traditional stalwarts of PE—the big pension funds, insurers, and endowments. Those huge institutions still overwhelmingly choose pools, where they can put tons of money to work quickly without specialized teams needed to parse these bespoke deals. Meanwhile success attracts competition—and Swain’s fat returns (garnered by buying and fixing cheap, overlooked, small and midsize companies) are attracting more and more competitors, a trend that could hike prices and reduce profits.
But no challenges seem to faze Swain, who has developed a vast Rolodex featuring the investment arms for the clans of late real estate magnate Sam Zell and ambassador to the U.K. Warren Stephens, plus the Romneys and Bloombergs, among a panoply of luminary names. He proved an expert at curating a cast of top sponsors and identifying the investments that promised—and a few years later delivered—big, PE-beating returns. “Pre-Matt, we had to find the independent sponsors, and it was difficult,” says Duran Curis, founding partner at Ocean Avenue Capital Partners, who manages a $2 billion portfolio of 140 directs. “His big contribution is that he finds them for us, and presents the best opportunities.” Now, paired with the muscle of Houlihan Lokey, Swain has big plans to start selling to pension funds, endowments, and asset managers.
Adds David Feierstein, cofounder of Ronin Equity Partners, an investment firm for which Swain’s raised several hundred million dollars to fund half a dozen purchases, “If you didn’t have someone as aggressive and charismatic as Matt, the directs industry wouldn’t be nearly where it is today. Matt had the first mover advantage. In directs, Matt runs the show.”
The charm offensive
There’s something rare about Swain, who is a young brainiac, but one who has built his business the old-fashioned, pre-quant-trading and Excel models Wall Street way, via charm offensives that weave webs of tight relationships few rivals can match. It’s remarkable that this super-hustler comes from a highly privileged background. He grew up in Greenwich, Conn., son of the CFO of a prominent hedge fund. His ancestors were the original owners of Nantucket island. “Matt tells me his family had been coming to Nantucket for generations. So we’re walking to get coffee and we pass Swain Street, then Swain House, then we go to the Whaling Museum and get greeted by half a dozen portraits of his forbears,” says Rupert Edis, CEO of the Landon family office that includes Landon Capital Partners, a long-standing investor in Swain’s directs.
After graduating from Colgate University, where he served as student body president and starred in squash—he’s still one of the best amateur players in Manhattan—Swain joined Stifel, in a “placement agent” unit that raised money for hedge funds. The managers were amazed that family offices weren’t returning their calls, so they assigned Swain to find takers from a “dead list” of 1,000 mostly wealthy clans. The green recruit got mostly noes, upbraidings, and even a “You’re a midget!” from the respondents who didn’t hang up, but he also learned there was a gap in the market.
Swain played matchmaker. He found that independent sponsor IVEST needed funding for a plush toy purveyor called Dan Dee, and brought their leaders to Solamere, the family office representing the Romneys, former Walmart CEO Lee Scott, and other wealthy investors. Swain raised $100 million to notch the purchase. By 2018, he found a spot that was just small and daring enough to take a flier on his vision of building a whole business around directs: Triago, the firm founded by Frenchman Antoine Dréan that did a thriving trade in a close cousin, finding buyers for limited partners (LPs) that sought to sell their stakes in private equity pools.
Swain quickly turned directs into Triago’s profit driver. Over three years, he raised $3 billion in equity capital for 35 deals that, including debt, backed over $10 billion in purchases. In April 2022, Dréan named his 27-year old comer as CEO.
While Big PE typically delivers twofold returns to investors over a longer holding period, directs aim far higher. “Our investors are looking for returns of 3x or more,” says Patrick Zyla, managing director of Castle Harlan, a firm that Swain has worked with extensively.
Regular PE funds famously charge around 2% a year on all investors’ funds, whether or not they’ve been put to work yet. The directs sponsors typically don’t charge any fees at all, and even better, don’t get paid unless they deliver big-time. The industry’s giants usually get a fixed “carry” of 20% of profits when companies are sold. But directs deals are usually structured so that the sponsors garner zip until they hit a 2x bogey. Over that number, they start collecting 20%, but their take accelerates sharply with each multiple of their investors’ stake they return. If the sponsor-managers hit 5x, they can pocket as much as 40% of the gain.
“If you didn’t have someone as aggressive and charismatic as Matt, the directs industry wouldn’t be nearly where it is today.”David Feierstein, cofounder of Ronin Equity Partners
Sam Zell, who along with his team funded a number of Swain’s deals, absolutely loved this ultra-“skin in the game” aspect of directs. (Swain relates that Zell liked having his photo snapped alongside the youngster, as Swain was only slightly taller than the late bantam tycoon.) Zell and the president of the Zell family office EGI, Mark Sotir, would push Swain to arrange transactions that raised the bar for capturing a share of the profits, but gave the management teams an even bigger score for fabulous results.
That makes Houlihan Lokey’s pitch particularly appealing right now, given that PE has seen a sharp drop-off in exits: According to Hamilton Lane, a firm that invests on behalf of pension funds, as of 2021 PE firms were still holding 45% of their buyout deals five years following their purchase; last year, around 65% were still sitting unsold after a half-decade.
Meanwhile Swain’s model thrives on speed. With directs, the money comes fast, and so do the fees. It typically takes placement agents working on behalf of PE firms nine to 18 months to raise a full fund. But once the Swain gang gets a mandate from a sponsor, he and his bankers regularly make the rounds and secure the funding in eight to nine weeks. His team of 40 also concentrates on bigger and bigger deals that swell their take from the average directs transaction. This year, he expects to do around a dozen deals at an average enterprise value of $200 million to $400 million. “That’s much, much bigger than the average in the industry,” he avows. “We’re now working on one worth $2 billion, and the numbers will keep climbing.”
That expanded holding time, and LP thirst for liquidity, should especially benefit the first field where Swain and Houlihan Lokey envisage big expansion beyond traditional directs: so-called continuation vehicles, or CVs, where a fund tags an outstanding company promising great things, and doesn’t want to sell as it exits the other holdings. Today, Evercore is the biggest player, but Houlihan is rising. CVs cash out most of the existing LPs in that star “keeper” at a good return, and replace them with a fresh crop that sees big gains ahead by keeping and growing the standout for another, say, three or four years. The company spins off from the fund and continues as a stand-alone. The newcomers are once again going “direct” since they’re shopping on a deal-by-deal basis.
The second offshoot is what’s known as “co-investment.” PE firms increasingly seek to raise money beyond what the original investors contributed to a given fund. Say the managers see a software provider on the block at a bargain price, and want to add it to a tech portfolio. Or the “concentration limit” on any one purchase is $300 million, and they’d hate to miss out on a perfect fit at $450 million. Or the goal may be clinching a big add-on acquisition, or satisfying an unforeseen surge in sales by constructing new plants. In all those cases, the fund may lack the capital for seizing the opportunity. It may have $300 million still in its coffers and need a couple of hundred million more.
Swain and the Houlihan Lokey team view the area, still in its infancy, as a huge field for lucrative fundraising and investment-banking business. It’s a good deal for the fund LPs because they pay no fee or carry on the additional capital. The new investors pay carry at a rate that’s closely tied to performance: The percentage starts low and rises depending on the level of profit achieved. The arrangement empowers the co-investors to pick and choose their own individual deals, the great lure of directs in general.
Instead of coming from the small sponsors that Swain has mainly represented in the past, these opportunities are flowing from big, established PE outfits that have run these candidates for years, and can show impressive track records, both for the co-invest property and the firm’s overall performance. That imprimatur greatly heightens their appeal.
“A commercial thought every minute of every day”
At Houlihan Lokey, Swain persists in the headlong roundelay of networking that’s his calling card. He does most of his business in a five-block radius of Midtown Manhattan. He resides in a Moorish-themed, Park Avenue high-rise, where he rents an apartment from Eric Trump; Ivanka Trump is his neighbor. Swain does his primary dealmaking at two nearby eateries, tony French venue Le Bilboquet and the LoewsRegency Bar & Grill. “I do back to back breakfasts at Loews, then a lunch at Bilboquet,” he avows. “Then in the evening it’s three chapters. First a cocktail at Bilboquet, then a real dinner, then an elongated catch-up over drinks. Before I hit 30, it would stop at midnight. Now that I’m 30, it’s over by 11:00 or midnight.” In the interests of efficiency, Swain changes tables when the new guest arrives, even if the old guest is still sitting there. Notes Tom Burchill, managing partner of PE firm Seven Point: “He bounces from one pole to another. Once, I got him for 45 minutes at Bilboquet. Lucky me.” When on Nantucket, Swain zooms around the island in a hard-bottom, Navy SEAL–style, super-high-speed raft, a type deployed by the military in Ukraine. He had it imported, and the money went to a manufacturer looking to support jobs in the beleaguered nation.
His business associates view him as both blithely charming and, in a word, obsessed. “Matt thinks a commercial thought every minute of every day,” observes Hotz, whom Swain reveres as “Uncle Bob.” Adds Mike DiPiano, managing general partner at tech PE firm NewSpring Capital: “He’s a young man selling at all times.” His ability to attract top older notables is remarkable. “He’s got this old soul for a young guy, and it’s infectious,” says Kevin Wilcox of the Stephens family office. Edis, of the Landon family office, praises Swain’s knack for “attracting powerful mentors and allies” and calls his ability to accomplish tasks in a jiffy as “Napoleonic”—at 5-foot-8, by the way, Swain is midsize, like the companies he markets.
Though Houlihan Lokey bought Triago 18 months ago, each side is already bringing the other big benefits. It’s astounding that the firm is so little known. Houlihan ranks as the world’s largest investment bank for midsize private companies. It’s also been the top performer on Wall Street for rewarding investors over the past decade, and by a lot. In that span, it’s delivered total shareholder returns of 26.4% a year, beating such fellow boutiques as Lazard (5.9%), Jefferies (13.2%), Moelis (17.2%), and Evercore (22%), while also waxing big guys Citigroup (9.3%), Bank of America (14.5%), Goldman Sachs (18.0%), Morgan Stanley (19.9%), and J.P. Morgan (20.3%). Back in the fall of 2015, Houlihan’s market cap trailed those of Jefferies, Lazard, and Evercore. Now at $13.6 billion, it’s bigger than all three.
A major plus in terms of the synergy at the newly combined company: the directs investment, fund investment, CVs, and co-investments originating from Houlihan Lokey’s PE clients. In 2023 Atlas Merchant Capital, a combined hedge and PE fund headed by former Barclays CEO Bob Diamond, worked with Houlihan as its advisor to MarshBerry, in a significant fund investment for that leading platform in the insurance brokerage space. Diamond is a Swain fan and was one of the Triago bidders. Now that Swain has joined Houlihan, Diamond is giving the firm business on both the fund investment and directs sides; he’s recently engaged the Swain team on securing follow-on capital for Atlas portfolio companies.
The CV connection is also spouting advisory fees for Houlihan Lokey. Last October, Swain raised the money for PE fund NewSpring, renowned for scoring big from buying Nutrisystem in the 2000s, for a vehicle that combined two of its star portfolio holdings. “You realize that if you could just hold these investments longer you’ll get much more out of them,” says cofounder DiPiano. Over sundry phone calls, Houlihan provided investment banking guidance to the family office investors, parsing the transactions’ pros and cons.
In co-invests, Riverside, a $14 billion PE firm that had been a Houlihan Lokey client for years but never worked with Triago, was seeking additional co-investment equity as a way to attract new limited partners and close on two fresh investments. Via the Houlihan connection, in stepped the Swain team. “We were introduced to dozens of LPs in short order, and secured investments from a number of them,” says Peggy Roberts, a managing partner at the firm. “Partnering with Houlihan has helped us forge sustained relationships with firms we would not have met otherwise.”
In the past nine months, Houlihan has raised over $500 million to secure three purchases for Swain’s stalwart customer Ronin. In June, the Swain contingent provided Ronin the funding to buy a company that repairs and overhauls systems for commercial aircraft. Houlihan conducted analysis on behalf of the family office investors. In April, Landon Capital Partners (LCP) scored a big hit via the sale of its portfolio holding, Wisconsin cheesemaker Heartisan Foods, where it partnered with Ronin on a deal in which Triago had raised the money. Through the Swain link, LCP has awarded Houlihan two mandates, one for a debt financing of a portfolio company, and another to explore a sale.
Early this year, the directs franchise collected $75 million in equity and debt for Seven Point to buy Frazier Aviation, producer of structural parts for military aircraft. Now, Seven Point is strongly considering Houlihan Lokey to provide the mark-to-market valuation analysis of its portfolio holdings to deliver to investors.
The rewards also go the other way. Liberty Hall, a PE sponsor focused exclusively on aerospace and defense, is a long-standing Houlihan Lokey client, and had hired Triago before the acquisition to lead a CV. The tie-up has further deepened its Houlihan relationship. Liberty Hall hired Houlihan to raise the capital for a classic direct that closed earlier this year. Between the CV and direct, Houlihan secured $250 million for Liberty. It’s also working with the Houlihan M&A group to seek new purchases.
Edis, chief of the Landon family office and a protégé of its founder, the late swashbuckling billionaire Timothy Landon, who’s legendary as the chief political advisor to his military school chum, the sultan of Oman, notes that Swain gives Houlihan Lokey an extra edge. “Matt’s been crucial in upselling Houlihan’s other services. As investments move through their life cycle, they need M&A, debt refinancing, and finding buyers for the final sale, and the natural thing for one of Matt’s companies is for Houlihan to take on that work,” says Edis. “We’re doing a new refi with Houlihan because of the cycle that began with Matt.”
In April 2025, the firm promoted Swain as co-head of its equity capital solutions group. The unit encompasses both the equity and debt fundraising franchises; according to sources on Wall Street the group generates $400 million to $500 million a year in revenue—that’s as much as a quarter of the $2.4 billion the firm posted in fiscal year 2025, ended in March.
Swain’s section is highly lucrative. From industry sources, Fortune estimates that at an annual run rate, the three directs areas combined—the traditional variety, CVs, and co-invests—are raising well over $5 billion a year. From studying this highly fragmented industry, Fortune concludes that Houlihan Lokey leads the field in combined classic directs and CVs; in directs alone, it holds a market share of around 10%.
For Swain, the rise of directs presages nothing less than a revolution in the world’s financial markets. “In the future, more and more institutional investors like pension funds and endowments will follow the family offices in buying individual companies, just as investors pick stocks. Instead of investing in a pool, they’ll invest directly into a company’s equity,” he declares. “In other words, directs will make the private market for companies much more liquid so that it looks like the public market for stocks.” Swain predicts that within a decade, the total size of the three classes of directs will be attracting the same annual volume of new funds as traditional PE commands today.
“In the future, directs will make the private market for companies much more liquid so that it looks like the public market for stocks.”Matt Swain
Already the Ventura County Employees’ Retirement Association is launching a program that will spend up to $20 million on directs co-investment this year, and the Texas Municipal Retirement System plans to dedicate as much as $15 billion over the next five years, adding extra growth capital to individual holdings in PE funds. “The large pension funds are migrating to smaller managers in the lower-middle-market and middle-market space because that’s where they’re seeing the highest returns,” says a leading investment advisor to the PE industry.
Swain’s PE customers praise his analytical skills in identifying the most promising deals. “He did intense due diligence on the Frazier Aviation deal, where we’re sponsor,” recalls Burchill of Seven Point. “When Matt goes in front of investors and says it will be good, they listen to him. His credibility helped give us our choice of investors.”
The golden child has developed his own highly original approach in trawling for profit—even on the streets of Manhattan, where you’ll never find him inside a taxi. “No matter how hot or cold it may be, Matt will say, ‘Let’s walk. It’s better for networking,’” marvels Hotz. One day in September, this writer joined Swain on one of his excursions down Park Avenue, and on cue, he ran into Jack Oliver, who heads the PE firm Finback, alongside former Florida Gov. Jeb Bush. Two of the most outsize personas in private equity held their own little curbside summit, rapping on how they might connect on deals. I later asked the super-personable Oliver whether he or Swain is the more magnetic presence. Riposted Oliver: “I’d have to say I have the bigger personality. But he’s more successful.” One thing’s for sure, in a business that thrives on relationships, Swain will never stop working the room, the block, the island, the world, to bring deep-pocketed investors into his own corner of Wall Street.
Elon Musk has given the thumbs up to some Tesla drivers texting behind the wheel.
The EV maker recently introduced a 30-day free trial of its Full Self-Driving (Supervised) (FSD) features on its North American cars, which has traffic-aware cruise control, autosteer, and autopark. To the Tesla CEO, the automated features in place are enough to condone texting while driving. According to safety experts, Musk’s suggestion is actually plain illegal.
In response to an X user’s question on Thursday about being able to text and drive while a Tesla is operating FSD v14.2.1, its latest full self-driving capabilities, Musk responded: “Depending on context of surrounding traffic, yes.”
Musk’s response mirrors his comments at Tesla’s annual shareholder meeting last month, where he said the company would soon feel comfortable with a multitasking driver.
“We’re actually getting to the point where we almost feel comfortable allowing people to text and drive, which is kind of the killer [application] because that’s really what people want to do,” Musk said. “Actually right now, the car is a little strict about keeping eyes on the road, but I’m confident that in the next month or two—we’re going to look closely at the safety statistics—but we will allow you to text and drive essentially.”
With a $1 trillion pay package on the line, Musk has worked to jumpstart Tesla after continued lagging sales. His lofty automation goals tied to the compensation plan include delivering 20 million vehicles and having 10 million active FSD subscriptions, as well as 1 million robotaxis on the commercially operational.
FSD roadbumps
Tesla’s FSD rollout, much like its other automated technologies, has hit snags. In October, the U.S. Department of Transportation-run National Highway Traffic Safety Administration (NHTSA) opened an investigation into the EV maker, alleging its FSD software violated traffic laws and led to six crashes, four of which resulted in injuries. It cited data from 18 complaints from Tesla users claiming the FSD-equipped cars ran red lights or swerved into other lanes, including into oncoming traffic.
There is another complication for Musk’s vision of a Tesla owner typing away behind the wheel: Texting and driving is illegal in nearly the entire country, barring Montana, according to the U.S. Bureau of Transportation Statistics. According to the NHTSA, distracted driving resulted in 3,275 deaths in 2023.
Even Tesla has warned owners against texting while driving, even with some automated features in place: Tesla’s Model Y Owner’s Manual asks drivers not to use their phones while driving with Autopilot software enabled. (Autopilot refers to Tesla’s basic driver assistance features requiring hands on the steering wheel, while FSD is a paid subscription package with enhanced automated features and does not require a driver to have hands on the steering wheel.)
“Do not use handheld devices while using Autopilot features,” the manual said. “If the cabin camera detects a handheld device while Autopilot is engaged, the touchscreen displays a message reminding you to pay attention.”
Tesla did not respond to Fortune’s request for comment.
What experts are saying
Alexandra Mueller, senior research scientist for Insurance Institute for Highway Safety, told Fortune condoning texting while behind the wheel completely undermines the purpose of Tesla’s current automated features Tesla, which are a level 2 on the five-point automation scale, meaning the models require the driver to still be fully in control of the vehicle.
“Having partial automation support doesn’t mean that you suddenly can kick back and text and not worry about driving,” Mueller said, “because that’s just not how these systems are designed to be used—and that’s also not the responsibility that the driver has when using these systems, and that’s by design.”
She said automated systems like Tesla’s are not designed to replace the driver and work because they are “human-in-the-loop” and were designed to support the driver’s discretion behind the wheel. Beeps and notifications from the vehicle if a driver changes lanes without signalling can help shape good behaviors, Mueller noted. Encouraging multitasking behind the wheel turns these features into convenience factors, rather than the safety precautions they were intended to be.
“Suddenly all your safety assessments on the technology don’t apply anymore, because you’ve changed the very nature of how the technology is supporting human-in-the-loop behavior,” Mueller concluded.
Netflix’s $72 billion play for Warner Bros. is as much a bet on the future of artificial intelligence (AI) and chips as it is on movies and shows, according to a top Wall Street analyst, who said in an interview with Fortune the deal cannot be understood without looking at Google’s technology ambitions.
Amid cries from the jilted Ellison family about a “tainted” sale process and indie producers and theater owners of the “death of Hollywood,” Melissa Otto, Head of Research at S&P Global Visible Alpha, sees a different game being played. Otto said she thinks the tech angle of the industry is being overlooked.
“I think there’s this much bigger conversation that is being missed,” she said: Google and its TPU chips.
A key question for the future of entertainment, Otto told Fortune, is control over premium video at massive scale in an era when generative AI will increasingly create, remix, and personalize moving images. (Otto called it the “video corpus” that will train and power the next generation of AI models.) Over the long term, Otto added, that is a key part of the mystery behind why Netflix, long a builder rather than a buyer, would make Hollywood history by taking out one of its biggest rivals and one of the town’s prestige legacy studios.
Co-CEO Greg Peters was asked a blunt question about that same thing this morning on the call with analysts about the historic merger. Rich Greenfield of LightShed Partners cited Peters’ own previous statement at a Bloomberg conference about how there’s a long history of failed media mega-mergers, so he questioned: “Why is this going to end differently than every other media transaction essentially of this scale and history?”
Peters, while clarifying his remarks at the conference were a bit more nuanced, acknowledged “historically, many of these mergers haven’t worked, some have, but you really got to take a look at this on a case by case basis.” Still, Peters argued most previous big deals showed a lack of understanding about the underlying business, and Netflix understands these assets and has a “clear thesis about how the critical parts of Warner Brothers accelerate our progress.” He also acknowledged Netflix isn’t expert at doing large-scale M&A.
After all, this is expensive. “We are surprised that Netflix felt the need to spend $80bn+ and pay a premium for something Netflix disrupted,” Barclays analysts wrote in reaction to the deal, “and it is not clear what problem or opportunity Netflix is solving for that couldn’t have been achieved organically.”
In a statement emailed to Fortune, Dave Novosel, a Gimme Credit senior bond analyst, said the deal looks expensive to him as well, with Netflix assuming nearly $11 billion of debt.
“While the WBD assets bring an amazing amount of attractive content, NFLX is paying a steep EBITDA multiple of more than 25x, which seems extravagant,” Novosel wrote. Once it reaches the advertised synergies, he added, the resulting multiple of closer to 15x seems more reasonable. While those are pending, “the huge amount of debt that Netflix will need to raise to fund the deal will take leverage to well more than 4x initially.” Novosel wrote investors may need to be patient. Bloomberg’s credit team, meanwhile, reported the $59 billion bridge loan being taken out to finance this deal is among the biggest in corporate history.
Here’s what Otto sees happening in Northern California, far from Tinseltown, where the Warner deal is all anybody can talk about, and why Netflix took such a big swing.
Is the future of entertainment Northern or Southern California?
Part of Netflix’s thesis, according to Otto, is that it’s a tech company at heart and it recognizes Google’s rapid advancements in AI, particularly its advancements in TPU chips.
“What TPU chips do really, really well is in the modality of video in generative AI,” Otto said, as they essentially turn mathematical representations into moving pictures in much the same way GPUs revolutionized natural language AI by tokenizing and modeling text. Instead of ChatGPT and text, think Gemini 3 and YouTube videos.
Netflix already trails YouTube in total share of streaming time, with Bank of America Research recently citing Nielsen data showing YouTube held 28% of U.S. streaming, versus Netflix’s 18%. Otto said this threatens to go up another notch when and if Google’s TPU chips turbocharge content made with generative AI.
“I’m sure that it’s feeding into the strategy,” Otto said. “If I were Netflix and I knew that Google, one of their formidable competitors, had this chip technology and was essentially plowing billions and billions of dollars into developing the infrastructure so that they could carve out the corpus of the video modality in generative AI, I would want to build a moat around my business.”
On the surface, Netflix is buying a legacy studio with a deep library, beloved franchises, and a global brand—and paying up to do it. The combined streaming and studio business generates about $25 billion in revenue and roughly $4 billion to $5 billion in EBITDA, but margins on streaming remain thin, making the economics of the deal look tough in the near term. Executives have emphasized overlapping subscribers, obvious cost cuts and an expected $5.5 billion in efficiencies, the kind of “low‑hanging fruit” that can occupy management for the next 12 to 24 months, Otto said.
But in a world where TPUs can make high‑quality video “basically for free,” any player lacking both the chips and the content could find itself outgunned as AI reshapes how entertainment is produced and consumed. That makes Netflix’s big splash for Batman, Harry Potter, and the like a different kind of moat, and a different kind of game than the classic Hollywood rivalries of yore. Otto said it was plausible generative AI entertainment could be seen as an extension of the recent IP wars that saw Hollywood deluged by floods of superhero movies and sequels, with Disney’s Marvel Studios ushering in a computer generated revolution in the 21st century. “I think that’s not an outrageous assumption.”
By absorbing Warner Bros., Netflix increases the volume and diversity of content it can feed into recommendation systems, experimentation and, eventually, its own AI‑driven video tools. Otto also noted the deal potentially gives Netflix more exposure to advertising, an area in which Alphabet has dominated and where Warner Bros. still generates $6 billion–$7 billion in ad revenue. While the ultimate destination of that ad talent remains unclear, as they may go to the spinco that includes WBD’s cable assets such as CNN and TNT. (Netflix has only been active in ads since 2022, having been a premium subscription service since it pivoted from DVD rentals to streaming in the late 2000s.)
Imagine a world, Otto said, where you could create your own versions of the crime classic Columbo starring an AI-generated version of legendary actor Peter Falk, who died in 2011. (Columbo had several homes on TV on neither Warner Bros. nor Netflix, as it was first an NBC property in the 1970s, and then an ABC property from the late ’80s onward.) “In this day and age, boy, wouldn’t it be interesting?” Otto asked rhetorically.
In many ways, she added, this moment is remarkable because Netflix may end up neither a subscription nor an advertising business, but an AI-based one that doesn’t quite exist yet. “It’s kind of exciting because it means that it’s anybody’s game,” Otto said.
Otto also raised the spectre of TikTok, the social media giant partially under the control of Larry Ellison.
“They’re a formidable competitor as well,” she said. What’s likely, she added, is the future will be unpredictable. The rise of AI “could provide some really amazing innovation over the next couple of years.” She agreed it could create a bonanza for show business lawyers who wrangle over the rights of things like the likeness of Falk, which was a major issue in the recent Hollywood strikes.
“That may be the real story,” she said.
[Disclosure: The author worked internally at Netflix from June 2024 through July 2025.]
Netflix Inc. agreed to buy Warner Bros. Discovery Inc., marking a seismic shift in the entertainment business as a Silicon Valley-bred streaming giant tries to swallow one of Hollywood’s oldest and most revered studios.
Under terms of the deal announced Friday, Warner Bros. shareholders will receive $27.75 a share in cash and stock in Netflix, valuing the business at $82.7 billion including debt. The total equity value of the deal is $72 billion. Warner Bros. will spin off cable networks such as CNN and TNT into a separate company before concluding the sale of its studio and HBO to Netflix.
Media mergers of this scale have a rocky history and this one is expected to bring intense regulatory scrutiny in the US and Europe. The deal combines two of the world’s biggest streaming providers with some 450 million subscribers. Warner Bros.’ deep library of programming gives Netflix content to sustain its lead over challengers like Walt Disney Co. and Paramount Skydance Corp.
The acquisition, which confirmed a Bloomberg report Thursday, presents a strategic pivot for Netflix, which has never made a deal of this scope in its 28-year history. With the purchase, Netflix becomes owner of the HBO network, along with its library of hit shows like The Sopranos and TheWhite Lotus. Warner Bros. assets also include its sprawling studios in Burbank, California, along with a vast film and TV archive that includes Harry Potter and Friends.
“I know some of you are surprised we are making this acquisition,” Netflix co-Chief Executive Officer Ted Sarandos said on a call with analysts Friday. He noted that Netflix has traditionally been known to be builders, not buyers. “But this is a rare opportunity that will help us achieve our mission to entertain the world.”
Netflix shares were down 3.5% Friday afternoon in New York. They have declined about 17% since the streaming leader emerged as an interested party in October. Some investors and analysts have interpreted this deal to mean Netflix was worried it couldn’t expand its current business, a theory co-CEO Greg Peters dismissed.
Warner Bros. stock was up about 5.2% midday in New York. It has almost doubled since reports of deal talks with Paramount emerged in September. Play Video
The news concludes a flurry of dealmaking over the past few months that began with a series of bids by Paramount. That prompted interest from Comcast Corp. and Netflix, who were both chasing just the studios and streaming business. All three submitted sweetened bids earlier this week, with Paramount ultimately offering $30 a share for all of Warner Bros. Discovery, arguing that its proposal offered a smoother path to regulatory approval. Netflix won out in the end although significant hurdles remain before the deal can close, which the company expects it can do in the next 18 months.
Paramount could still try to raise its bid, take its offer directly to shareholders or sue to try and block the Netflix deal. The company had no comment.
California Republican Darrell Issa wrote a note to US regulators objecting to any potential Netflix deal, saying it could result in harm to consumers. Netflix has argued that one of its biggest competitors, however, is Alphabet Inc.’s YouTube, and that bundling offerings could lower prices for subscribers. Netflix accounts for between 8% and 9% of TV viewing in the US each month, according to Nielsen. It accounts for closer to 20% or 25% of streaming consumption.
Analysts at Oppenheimer said platforms such as Reels, TikTok and YouTube competing for viewers’ time should help the deal pass antitrust review.
It was 15 years ago that Time Warner CEO Jeff Bewkes, who oversaw Warner Bros. and HBO, shrugged off the threat posed by Netflix, comparing the then fledgling company to the Albanian Army. As Netflix began to invest in original programming, Sarandos declared that Netflix wanted to become HBO before HBO figured out streaming.
Sarandos succeeded and Netflix led the streaming takeover of Hollywood while HBO struggled to respond to the rise of on demand viewing and the decline of cable. Bewkes agreed to sell Time Warner to AT&T in 2016, the beginning of a decade of turmoil for HBO and Warner Bros., storied brands that are about to have their fourth owner in a decade.
Warner Bros. put itself up for sale in October after receiving three acquisition offers from Paramount, which were rejected, opening the door for Netflix and Comcast. Peters said he didn’t see the logic of these big transactions at Bloomberg’s Screentime conference in October, but Sarandos privately pushed for the deal.
The bidding got contentious, with Paramount accusing Warner Bros. of operating an unfair process that favored Netflix. The Netflix offer topped Paramount’s when combining the money for the studio and streaming business with the estimated value of the networks. The two sides agreed to the deal Thursday night.
Under terms of the agreement, Warner Bros. shareholders will receive $23.25 in cash and $4.50 in Netflix common stock. Moelis & Co. is Netflix’s financial adviser. Wells Fargo is acting as an additional financial advisor and, along with BNP Paribas and HSBC Holdings, is providing $59 billion in debt financing, according to a regulatory filing, one of the largest ever loans of its kind. Allen & Co., JPMorgan Chase & Co. and Evercore are serving as financial advisers to Warner Bros. Discovery.
Netflix agreed to pay Warner Bros. a termination fee of $5.8 billion if the deal falls apart or fails to get regulatory approval. “We’re highly confident in the regulatory process,” Sarandos said Friday.
In addition to streaming overlap, regulators will also likely look at the impact on theatrical releases, which Netflix has traditionally eschewed in favor of prioritizing content on its platform.
Netflix said it will continue to release Warner Bros. movies in theaters and produce the studio’s TV shows for third parties — two major changes in how it does business. The company was a little short on details of exactly how it will integrate the different businesses, but Netflix said it expects to maintain Warner Bros.’ current operations and build on its strengths.
The deal will allow Netflix to “significantly expand” US production capacity and invest in original content, which will create jobs and strengthen the entertainment industry, the company said. The combination is also expected to create “at least $2 billion to $3 billion” in cost savings per year by the third year.
Warner Bros. Discovery CEO David Zaslav was the architect of combining Warner Bros. and Discovery in 2022, a deal he hoped would create a viable competitor to Netflix. But the company’s share price tanked in response to a series of public miscues and the continued decline of the cable network business.
While performance rebounded a bit over the last year, the company never quite became the streaming dynamo Zaslav envisioned. He’ll continue to run the company through its spinoff and sale. The two companies haven’t yet agreed on him having any role at Netflix.
The traditional TV business is in the midst of a major contraction as viewers shift to streaming, the world that Netflix dominates. In the most recent quarter, Warner Bros. cable TV networks division reported a 23% decline in revenue, as customers canceled their subscriptions and advertisers moved elsewhere.
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