Dell is a Finance Company
Michael Dell took Dell Computers private in 2013, acquired EMC for $67b in cash 2016 (took EMC private as well) and now is on the path to go public again.
What is going on?
In 2016, Dell with the acquisition/merger with EMC became the largest owned private technology “startup” in the world. With EMC came all the investments they’ve put into VMware, Virtustream, RSA and Pivotal. This essential made Dell a superstore that would meet every Enterprise’s technology needs under one roof, from Severs, Storage, Virtualization, Cloud Applications, Security and the list goes on. The question is even though Michael Dell kept on commenting about the need of bringing everything under one roof for the convenience of the customer, was there any trend in the industry indicating that consolidation is the way to go? The short answer is “No”.
Michael Dell is a great entrepreneur and one of the most driven people in the industry. He knows that technology, the idea and the product are all commodities in this fast moving sector. He knows that two guys with a dog in a garage can overtake him tomorrow. But what keeps him up all night is making “Dell” a name that will last and he’s not afraid of evolution. With one merger and in an instant, it became a technology powerhouse and was positioned as a leader across PCs, Software, Servers, Security, Storage and Services in Gartner’s Magic Quadrant reports!
How was all this possible?
As Forbes says,
MSD Capital, Michael Dell’s family office, committed about $2.8 billion in cash to get the EMC merger done. Silver Lake and its limited partners also doubled down, and Singaporean sovereign wealth fund Temasek was brought in to provide additional cash. Again, Dell’s ambitions were helped by loose debt markets: Nearly $50 billion in debt was raised to pay for EMC. VMware’s 18% stub was kept publicly traded. Dell also listed a tracking stock to EMC holders that was supposed to mirror VMware’s worth and bridge its eye-watering $67 billion purchase price.
If the financial gymnastics are complex, Dell and Silver Lake’s announcement this morning proves the worthiness of the endeavor. (source)
Dell went private, why go Public again?
Michael Dell said today, it was market trends and industry trends that lead to purchasing Dell Technologies tracking stocks but those were the same reasons he started when going public as well. If you watched Michael Dell’s CNBC interview, one thing is clear, Dell had a tough time explaining what lead to his decision. We can also hear one tidbit and that is technology was not the driving force and it was all about how the money was being managed in paying down the debt.
Bloomberg did the coverage with one of their own analyst, Brooke Sutherland. She had a tough time explaining what was going and called Dell a feat of “Financial Engineering/Innovation” and calling it a reallocation of wealth than creating anything brand new.
It all boils down to this, Dell’s continued dominance can only be sustained if they can fast-track their debt payment and the only way they can do that without spending again is to access their crown jewel, VMware.
But will all these changes bog down VMware’s potential? only time will tell