Dell’s bold decision to go private wasn’t particularly shocking after rumors about the impending move surfaced a few weeks ago, but it’s a development that nevertheless has the potential to shake up the tech industry.
Let’s catch up with the analysts and experts who are weighing in on the meaning and impact of a $24.4 billion deal that will see Dell stockholders paid out $13.65 in cash for each share of Dell common stock, while CEO Michael Dell, Microsoft, and private equity firms Silver Lake and MSD Capital take over as private owners.
Here at PCMag, Editor-in-Chief Dan Costa laid out his thoughts on the move, guessing that Dell would “remain largely intact” but warning that current employees ought to be fairly anxious about keeping their jobs, given the history of private equity takeovers.
More analysis from our editorforget about privately held Dell tinkering around with Android, Chrome, Linux, and other non-Windows operating systems. Microsoft’s $2 billion contribution to the party means Dell “will be a Windows-only shop,” he said. Meanwhile, Dell’s rivals, particularly Hewlett-Packard, are already chomping at the bit to take advantage of this sudden upheaval in the PC landscape. Regarding HP’s quickly issued, baldly opportunistic statement on the deal, Costa wondered, “Why not just print your 800-number and say ‘Dell customers, call me’?”
Costa also mused about the new wave of innovation Michael Dell and his partners are promising from the new Della nice pledge, but can the same folks caught flatfooted by the explosion in the mobile market really pull that off?
Maybe so, opined Kotter International’s Randy Ottinger, writing for Forbes, who noted that all of the quarter-to-quarter maneuvering that happens at a public company beholden to public shareholders makes it difficult to foster a long-term strategic outlook, and in effect “kill[s] innovation.”
“Taking the company private will not solve Dell’s strategy failures, but it will give Mr. Dell a shot to bring back the entrepreneurial leadership and culture that allowed Dell to succeed in the past,” Ottinger wrote.
The Benefits of Going Private
So will this move make Dell a stronger company? Patrick Moorhead of Moor Insights & Strategy certainly thinks so. A private Dell can hold its cards closer to its vest, and move faster and more flexibly relative to its publicly held competitors, reckoned the analyst, who concluded that “this is the right move for Dell.”
That said, it won’t be an easy road for the company if it falls down in certain key areas, like marketing.
“Private companies need to spend more on marketing if they want to continue to be top of mind in awareness, familiarity, and even to drive preference. Sure, it’s great not to be in everyone’s face every second of trading hours, but you can’t fall off a cliff either,” Moorhead said.
Many observers, including Moorhead and Costa, figure that some of Dell’s biggest opportunities going forward will be in cloud-based services and products. That notion was conveniently summed up in a cartoon by Yelena Lamm from MyVoucherCodes.co.uk and sent to Business Insider by reader Nickolay Lamm. The illustration (at right) shows Michael Dell gazing intently into a cloudy crystal ball while ignoring fickle former shareholders.
As for those shareholders themselvessome of the biggest weren’t exactly pleased about the possibility of losing their stake in a struggling but still prominent company, as noted by the Houston Chronicle’s Dwight Silverman.
Nevertheless, Silverman believed the deal would go through and praised Michael Dell for daring to “drag … [his company] out of the view of shareholders and regulators and back into the dorm room where he started it.”
The upshot for Dell, according to Silverman, is that he’ll have a chance to become a “disruptor” in the PC and IT industries for a third timethe first being his decision to sell PCs direct to businesses and consumers, the second his introduction of online sales. But Michael Dell’s “third act will be trickier,” the Chronicle writer warned.
“The company wants to focus more on services, but there are already giants at play on that field. IBM is probably the most dominant contender, and HPwhile wounded and struggling to heal itselfis also a formidable opponent,” Silverman wrote.
Who Will Be the Next Dell?
Finally, it’s not surprising that some folks almost immediately began wondering if leveraged buyouts of once-untouchable public tech firms might become a trend and if so, which company might become the next Dell.
The answer from Igor Greenwald of Forbes might surprise youAmazon. What the hey now? Along with many other sensationalists and conclusion-jumpers, we’d have guessed HP, given that beleaguered company’s similarities to Dell in so many respects.
But Greenwald’s argument, one that runs contra to former Amazon exec Eugene Wei’s widely discussed blog post, starts with profit-to-earnings ratios and a comparison of Amazon today to Dell in 2003, with Apple looming over both companies as the counter-example to running a business on razor-thin margins.
As Wall Street’s current darling, it’s difficult to imagine Amazon winding up in Dell’s position any time soon. But things can change pretty fast, Greenwald noted. A decade ago, Dell was Wall Street royalty and Apple was the one being counted out.
By Damon Poeter, PCMag