WT Business Beat

By Nick Wakeman

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Nick Wakeman

Possible VMware-Dell deal has all the hallmarks of a rapidly changing market

I will pretend to understand all the financial nuances of this rumored deal. But I have to share some of the reporting about the possibility of a reverse merger where VMware would buy its majority owner in Dell Technologies.

Dell owns 80 percent of VMware thanks to the 2015 acquisition of EMC.

But Dell is reportedly looking to take the next step in its evolution and that could mean a return to the public markets.

Dell could forgo a traditional initial public offering and instead structure a reverse merger with VMware. Under that scenario, the publicly-traded VMware would acquire Dell. Then Dell would become a public company.

CNBC has been reporting on the reverse merger deal.

Michael Dell and investment group Silver Lake are the owners of Dell. The deal with VMware would allow them to reap some benefits of their investment in 2013 that took the company private.

According to CNBC, after a reverse merger Dell and Silver Lake would be able to sell the shares they own in VMware on the public market.

There also have been discussions that Dell could simply buy the remaining shares but the still leaves the issue of going public. But a reverse merger solves that.

While the financial maneuverings are fascinating, what is going on with VMware also says a lot about the market and the evolution of technology.

Through 2015, VMware had six straight years of double-digit growth, according to CNBC. That stopped in 2016 when it had 6.7 percent sales growth.

It has not reported full fiscal year 2017 results yet but it appears from its third quarter results, it will return to double-digit growth in 2017. Technically, it is the company’s 2018 fiscal year because its fiscal year ends Jan. 31 but 11 months of fiscal 2018 are in 2017.

But VMware has had to adjust its operations to compete in today’s market, especially as more of its customers turn to the cloud. That shift apparently has made it harder for VMware to achieve the same kind of growth it has in the past.

Growth is slower and that’s not any kind of criticism of VMware. They are definitely not alone in that.

In fact, you could probably make a strong argument that the company’s results are very positive given the challenges in the market.

The shift to the cloud and software as a service has forced all companies to adjust.

Whether you are Dell, VMware or any other business large or small: you have to adapt or risk being irrelevant.

Dell did it in 2013 when it went private and again two years later through the EMC buy. Whether it tries for this reverse merger or some other maneuver, Dell once again is showing that it is not afraid to make a bold move.

As the market rapidly evolves, it is the bold moves that are the hallmark of the survivors.

Posted by Nick Wakeman on Jan 29, 2018 at 9:45 AM

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