Michael Dell has led a buyout of his company that takes it off the public markets. Is that enough cover for Dell to remake itself?
Dell Inc. is going private, in a $24.4 billion deal that returns a 25 percent premium to shareholders who held the stock before rumors hit a few weeks ago.
Founder and CEO Michael Dell led the buyout with the private equity firm Silver Lake Partners. Microsoft also is reported to have ponied up $2 billion to invest in the buyout fund, but they are not part owners of Dell.
Freed from the public markets, Michael Dell should have the flexibility to remake the company. It’s struggled as the PC market has stagnated, and the mobile and tablet markets have exploded.
The company has made several attempts over the last few years, primarily through acquisitions, to add higher margin software, services and solutions. The results have been mixed, to say the least.
Going private will give the company some cover and time to make more changes because it won’t have the daily ticker of Wall Street and quarterly expectations to meet; however, the challenges that the company faces do not magically disappear with this deal.
Dell has been a great company, but its biggest challenge may be its culture as a premier manufacturer. It might have perfected an efficient manufacturing and delivery system, but others have caught up, just as the market for its flagship products – PCs and servers – have peaked.
The move into solutions and software is a challenge because sales cycles and compensation plans – the heart of a company’s culture – are very different from the hardware world.
Few companies – notably, IBM – have been able to make it work.
So, what are Dell’s choices going forward?
I’d expect an even more aggressive stand on cost than it has already implemented; after all, it will now have a pretty hefty debt service to pay.
Beyond that, it’ll be interesting to watch.
Will it sell parts of its business? Maybe do something as radical as dumping PCs?
Will it continue to make niche acquisitions to build out its data management and analytics offerings, or add more cloud and mobile technologies?
Or, will it make a blockbuster deal, so that it has a services business that rivals the revenue and critical mass of its hardware business?
This is a new start for Dell, and this deal is just the first of many moves to come.
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