So, Michael Dell and Silverlake Partners are taking Dell (the company) private by buying all of the outstanding shares for $13.65 per share in cash.. Much of the tech press is looking for meaning in the transaction.
Here is a typical section from Carter Lusher at Ovum:
Dell going private makes strategic sense. Dell is in the midst of a wrenching transition from a supplier of commodity hardware, mainly traditional PCs, to a supplier of enterprise-grade IT infrastructure. Dell’s ambition is nothing less than offering the entire IT stack with supporting services. While this transition has been going on for several years, there is still much that has to be done. Unfortunately for Michael Dell and his executive team, they are trying to make this transition as a public company with the albatross of meeting the next quarter’s earnings expectations hanging around their necks.
via Ovum — Emphasis is mine.
This strikes me as being a strange interpretation of events: Dell needs to go private simply because it is going through big changes.
Sorry, can public companies not change? If so, why is Dell going private after several years of transformation?
Let’s look at some other examples.
- Apple has launched some world-changing products over the last few years. In every case, funnelling massive investment into secret projects before publicly unveiling them. The whole time, they were a public company.
- IBM has almost completely redeveloped its BPM product offering over the last three years. Slimming and simplifying the portfolio from over 15 products overlapping and confusing products to just 4.
In both cases, the performance of the existing business was strong and consistent enough that Apple and IBM could make these operational investments as a public company without being punished by the market but Dell is a different case. Not because of the change in strategy but because its underlying business is eroding.
Again, Carter Lusher writes:
Dell has been making the transition from PC company to enterprise IT infrastructure supplier for several years. In fiscal year 2005, ‘clients’ (desktop and mobility) comprised 67% of Dell’s revenues. Through nine months of fiscal 2013, that number had dropped to 50%. However, the gradual reduction process hit a major problem due to the increasing popularity of smart devices (tablets and smartphones) that appears to have cut into sales of traditional PCs. In the first nine months of FY 2013, Dell’s client revenues dropped by 13% year-over-year, accounting for almost all the reduced revenue of Dell overall.
via Ovum
Public markets bring transparency and transparency brings scrutiny.
Enterprise buyers and investors should both be worried about Dell because their business is under pressure driven by changing consumer preferences. If anything, going private is going to exacerbate this situation by removing information from the public sphere that could be used to dispel this doubt.
Secrecy brings doubt and uncertainty.
So, why do it?
Michael Dell and gang at Silverlake are good business people and they see an opportunity here.
Taking the business private is about money, plain and simple.
Right or wrong, Dell and Silverlake think that the public markets are punishing Dell the company more than it deserves. Knowing what he knows on the inside, Dell thinks that he can make more money by buying the business at this price and finishing the transformation.
Will he have more control? Maybe – That depends on the deal with Silverlake. But, this is about the money and it will be interesting to see if Dell or the markets have put a better price on the business.
So, here’s the prediction: Dell will either IPO (again), be sold or will be gone in 3 years.
The target is $24.4 billion. Good luck to them.
