Dell Goes Private – What Are The Chances Of Success?

Dell Privatisation Highlights

• The process will cost about $24.4 billion – making it one of the largest ever privatisations in the ITC industry
• Michael Dell’s MSD Capital will join Silver Lake and Microsoft as investors
• The process of transformation into an Enterprise supplier is taking longer than expected
• The ‘go shop’ period will be 45 days, but the process will be extended if the EU gets involved
• Scott McNealy considered taking Sun private before leaving and the company being taken over by Oracle
• Other successful privatised ITC companies include Avaya and ASG Software
• The move highlights the difficulty some leaders/originators have in letting go
• Dell’s transformation should be aided by the privatisation

Like Steve Jobs, Michael Dell left (2004) and rejoined (2007) the company he started in 1984. Like Avaya in 2007 Dell has picked Silver Lake as a partner for this leveraged buy-out, which will supply $1B and Microsoft, $2B. Michael’s company MSD Capital will also provide $700M according to reports. The privatisation will be worth $24.4B according to Dell. Michael Dell has a personal wealth of $16B according to Forbes. You’ll want to know more about its current market share and opportunities for success.

The Enterprise Strategy Is Taking Longer Than Expected

Michael’s comments on the press release are important – ‘Dell has made solid progress executing this strategy over the past four years, but we recognize that it will still take more time, investment and patience, and I believe our efforts will be better supported by partnering with Silver Lake in our shared vision’
We’ve seen it transform itself from a box shifter in mainly English speaking countries to an Enterprise supplier with its own IP gained mainly through multiple acquisitions – see our latest article on its approach to Converged Infrastructure and Integrated Systems and our look at its storage and software businesses. It takes time to integrate the people, technology and processes of course, but Dell has also not been helped by the economic downturn.
Dell indicates that the ‘go shop’ process of privatisation will take approximately 45 days: it undoubtedly take much longer if things need to be authorised by the EU.

The Stock Market Is Hard For Mature, Failing Or Transforming Suppliers

Typically companies go public when they have matured enough to deliver good predictable revenues and profit. Facebook – one of the most recent – is now disappointing the stock market’s expectations from its massive initial valuation. Those with long memories will remember how Wall Street’s incessant demands led to the early demise of Digital and its purchaser Compaq: the rocky ride has continued for their ultimate purchaser HP as well.
The stock market works well for companies as they go through strong revenue growth – it would be difficult for instance to see how Apple could have managed its rise in recent years without it. However it causes trouble for mature, falling or transforming companies, often forcing them to make short-term pruning decisions.
We’ve come across a few companies who considered going private: Scott McNealy for instance discussed it openly in the years before he stepped down as Sun’s CEO and the company was sold to Oracle. There are a number of successful private suppliers (Wyse before Dell acquired it, ASG Software for instance), although the vast majority are publicly listed. In recent years we’ve even had examples of companies like Nortel who decided to disband altogether or Siemens, which has now largely left the ITC industry.

Some Conclusions – Charismatic Leaders Have To Let Go Sometime

Dell’s privatisation can be seen in the light of the shifting strategies of suppliers towards what we call Matrix Integration – where they take more responsibility for end-to-end customer experiences: this will be made easier given the reduction in the time and attention it can save in dealing with the stock market.
On a parochial basis we hope Dell will still publish lots of market stats (as Avaya does now after a period of silence) – it will be difficult for researchers to judge its success without a quarterly update, although our skill will be in estimating if it chooses not to. See above for the development of its revenue and profit growth and revenue (shown in the comparative size of each bubble in relation to Q3 2012).
It takes strong charismatic leaders to form successful companies and it’s always difficult to decide when to step down – and whether to come back when things look rocky. IBM and HP no longer have owner CEO succession issues – Gini and Meg respectively will be able to retire when the time comes. Larry at Oracle and Chambers at Cisco and Tucci at EMC may have more trouble. One difficulty is that the extremely rich owner managers of leading ITC companies have philanthropic ambitions which can’t be fulfilled within the strategies of their companies, no matter how strongly they pursue corporate and social responsibility activities. Bill Gates seems to have managed to follow an important role ther without needing to hold the reigns of Microsoft too closely. For Michael the lead into good deeds in 2004 evidently came too soon and it looks as if he still thinks there is much to do at Dell before he can consider leaving again. We have no doubt that the success of Dell’s Enterprise strategy will be accelerated through privatisation, not least because it will be able to take a longer-term view without the continuous short-term demands of the stock market.