Dell is ready for life back in founder's hands
Published 07/02/2013 | 04:00
A $24.4bn (€18bn) cheque has put entrepreneur Michael Dell back in control of the eponymous PC manufacturer that he founded as a student at the University of Texas almost three decades ago – and has since made him a fortune.
Despite the billionaire needing the help of US private-equity firm Silverlake and Microsoft to write the cheque, yesterday no one was questioning that the company will be better off away from the scrutiny that comes with life as a quoted company.
PC sales fell 3.5pc last year, according to research firm Gartner, and Dell's share of the market slid to 10.7pc from 12.3pc a year earlier.
The haemorrhaging of the PC market that built Dell's fortune, say analysts, has left the Texan company in need of radical surgery to restore its fortunes.
"Hitting Wall Street's targets, quarter after quarter, is not easy when you're going through these changes," said Adrian O'Connell, an analyst who covers Dell at Gartner.
"The pressure of quarterly results becomes more of a hindrance than a help."
Dell shares fell 31pc last year as pessimism about the outlook for the PC market deepened.
Mr Dell, who returned as chief executive in early 2007 after a two-year break, had already attempted to chart a new course for the company before he contemplated buying it last summer.
It has embarked on a series of acquisitions to increase its muscle in cloud computing, a service that allows companies to buy software online.
It has also stepped up its servers business.
Those who remain optimistic about Dell's future rest much of their case on the entrepreneurial drive of its founder, who started the company from his student digs.
Brian White, an analyst at Topeka Capital, said: "We believe this (deal) is the right decision, especially given that Michael Dell is only 47 years old and has been the vision behind the company since its founding in 1984 with just $1,000 in capital."
There is little doubting Mr Dell's appetite to combat the challenge presented by a shrinking PC market.
"We're a 28-year-old company, not a 128-year-old company," he said in an interview in December.
"We can fearlessly innovate in new areas."
Despite the founder's confident rhetoric, there were some who questioned how easily Dell can restore its long-term profitability.
The question of whether to stop making PCs for consumers will be one key question facing the business, said Mr O'Connell.
HP alarmed investors in 2011 when it signalled it may quit the PC business and chief executive Meg Whitman has since scrapped that strategy.
Although many believe it is ultimately the best course, there was concern that HP would lose the cash the business still throws off.
While Dell will no longer have shareholders to worry about, its new owners will have to pay interest on the almost $10bn they borrowed to finance the acquisition.
Dave Johnson, an analyst at research firm Forrester, says that Microsoft's decision to contribute $2bn to the deal suggests that Dell will not be quitting the PC consumer market soon.
Microsoft has been struggling to establish a foothold in the tablet market and Mr Johnson said this deal "gives an opportunity for Microsoft and Dell to collaborate".
If taking Dell private marked the end of an era in the PC industry, Wall Street bankers could have been forgiven for double-checking the headlines as they flashed up on their Bloomberg terminals. It is little wonder that it brought some warmth to New York's financial district on a wintry February day.
It is the largest deal involving a private equity firm and billions of dollars of debt since the first half of 2007, a period in which household names were being acquired on an almost monthly basis.
There will also be juicy advisory fees for a host of banks, including Goldman Sachs and JPMorgan.
While no one is expecting a return to the heady – and often reckless – pre-crisis buyout era, the deal has raised expectations that 2013 could trigger a wave of M&A action.
With Europe's debt crisis at least easing, the last quarter of the year had seen a pick-up in the pace of deals as confidence begins to return.
"It does give confidence that more deals will get across the finish line," said Morningstar analyst RJ Hottovy.
"Private equity has a lot of cash to put to work."
It will take time to determine whether Michael Dell's decision to take the company private pays off.
Wall Street, though, will be hoping that the confidence that it inspires will provide some more immediate rewards. (© Daily Telegraph, London)