Dell Buyout: Will the Cloud Rain on Silver Lake’s parade?


As we have all heard by now, the biggest news in the IT world over the couple of days is surrounding a Dell buyout. So the number 3 PC/Server maker in the world is about to be acquired. From what I have gathered, Silver Lake was in discussions with Dell earlier this week  for a leveraged buyout worth approximately $13 to $14 a share. This is according to the WSJ. Bloomberg is saying the total Dell buyout will be worth approximately $25 Billion!

Some Facts about Dell

2012 Revenue: $62.1 billion

Patents: At February 3, 2012, Dell held a worldwide portfolio of 3,449 patents and had an additional 1,660 patent applications pending. In March 2012, USA Today said that Dell agreed to buy SonicWall, and the acquisition was completed 9 May 2012. A company with 130 patents. SonicWall develops security products, and is a network and data security provider. Essentially Dell is holding roughly 3600 patents.

NO. of Employees: (in 2012) 110 000

Subsidiaries: Alienware, Dell Services, Force10, SonicWall, WYSE, SecureWorks, KACE Networks, Exanet, Compellent, AppAssure Software, Quest Software, Make Technologies

From Reuters Jan 15

“Buyout firm Silver Lake Partners, which is leading the deal, tapped Credit Suisse, Bank of America, Merrill Lynch, Barclays and RBC late last year to finance a potential deal, the sources said on condition of anonymity, because details have not been made public.”

Despite the advanced discussions, many are wondering if the deal can actually get done. If completed, this would be one of the largest deals to take place since the recession of 2008. This leaves many including myself asking what Silver Lake plans to do with Dell after the Dell buyout. Admittedly, I have not been close to the Dell ecosystem, but from what I have seen, heard and experienced, it is not the traditional IT company I am familiar with. Dell over the last couple of years has made some major acquisitions which helped grow their solutions portfolio. Perhaps biting off more than they can chew as they struggle to bring the various solutions focused cultures to a company which basically sold boxes direct to the end user. From the sound of their 2012 annual fiscal report, Dell has created a software solutions group stemming from 5 acquisitions they recently made.

Will the cloud put a damper on the Dell Buyout?

Ironically, I came across this article less than 1 month ago about HP, Dell and IBM entitled  “Why HP, Dell and IBM Are on the Wrong Side of Internet History”

The paragraph which stuck out to me the most was the following.

“Individual companies have grown as big as the big server vendors. Today, there’s so much data in existence that a single company can command a server volume close to the size of a single vendor’s entire business. If Dell has a volume of 2 million servers and your company requires 1 million, you suddenly comprise half the total volume of one vendor’s business – and that’s when it stops making sense to do business with the middleman. Just ask Google, which sits pretty at number five on Intel’s list of top eight server makers. The search giant doesn’t even sell servers; it simply needs so many of them to run its business that it makes more sense to build the servers and data centers themselves.”

Many say that Dell buyout is difficult to do. First reason being is the serious decline facing the PC industry. The the second is whether financial institutions are prepared to take the risk of financing such an ambitious deal. Personally this is what I know about Dell. They are a company who sells commodity hardware at a bargain price. They have recently aggressively diversified their portfolio of offerings to suit a larger audience.  Would I buy Dell hardware for my data center? I do not use Dell today. I already have in the past. It worked. Would I buy it again. Perhaps, but my data center is shrinking so if I did, not as much. Do I see Dell as an innovator in the IT world? No. Would I buy software solutions from them? Probably not. Would I consider them to provide a critical business service or application to me? I don’t think so based on the lack of integration and enterprise grade solutions for large IT organizations. Has the Cloud Era put Dell so far back, that they are at the point of no return?

I must admit Michael Dell was one the businessmen I admired most. He was a billionaire at 34 years old and a visionary at the time!  From what I have read, I think this is a great deal for him especially since if the buyout happens, he will stay on to assist in running the organization and attempt to restructure based on his prior vision. I guess we will find out more in the days to come about the Dell buyout everyone is talking about. At the time of publication it sounds like the deal is close to being done.

If someone has more input to share, I would gladly accept your feedback. Please email me at luigi.tiano@1cloudroad.com.

Thank you.

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