Dell Buyout: Investors Too Fickle for Software-Led Initiatives?


Strong rumors have emerged today regarding a possible buyout of Dell, with the PC maker said to be talking to two investment firms about a possible acquisition, according to sources close to the company.

The story was broken by Bloomberg, which cited unnamed sources as saying that the company was involved in “preliminary” talks with two private equity firms which are thought to be TPG Capital and Silver Lake. The moment the news broke, Dell’s shares soared by 13% to an eight-month high.

According to reporters Serena Saitto and Jeffrey McCracken, reverting to a ‘private’ company would allow Dell to accelerate its efforts at reviving growth and dealing with intense competition, as it would no longer face “quarter-by-quarter scrutiny from public shareholders.”

Slipping PC sales

The news doesn’t come as a complete surprise since we’ve heard talk of Dell going private before. CEO Michael Dell even admitted to reporters in 2010 that he had considered such a step, although he eventually decided against doing so at that time.

However, the situation has since changed somewhat, and it’s no secret that Dell is struggling in its primary PC market as consumers switch to mobile devices like smartphone and tablets over bulky laptops. Dell has fought back, following HP’s strategy and buying up companies like RNA Networks, Quest and Compellant as it looks to move into the enterprise niche, but even here it has struggled to gain a foothold in the face of competition from more established rivals such as IBM and EMC.  In addition, it has also made moves into big data and cloud services as it looks to expand its horizons.

The shift to cloud services was reiterated a great deal during Dell World last December, and we heard from Michael Dell himself many of the details this new direction will mean for the company. See the full interview below.

Fickle Investors

Dell’s strategy to move away from hardware is sound, but the problem the company faces is that investors can often be a fickle bunch, lacking the patience needed to see the company through its transition to enterprise. Due to this, Dell can envision numerous benefits from going private – the company would gain the flexibility and freedom it needs to contend with the likes of Apple and Samsung for consumers, while separately squaring up to IBM, EMC et al in the data-center arena. By going private, Dell would also gain the freedom to do something more radical, such as investing heavily in a mobile strategy, without worrying about investor scrutiny every quarter.

It’s still uncertain if any deal will move forward as there are so many factors to finalize – investors will need to secure financing for the deal, and they will also need to negotiate an exit strategy in case it wants to wash its hands of the company later on down the line. However, the fact that Michael Dell owns 15.7% of the company should make it easier for the investment firms to come up with equity financing, reports