Michael Dell has done it.
Along with Silver Lake, financing from banks and a $2 billion loan from Microsoft, he is taking Dell private in a $24 billion transaction – which everyone says is the largest buyout since 2007.
[I dug a bit deeper and found that the deal all of them refer to, but not specify, is the 2007 $32 billion TXU (texas utilities company) LBO on the part of Texas Pacific Group and KKR; But that was 2007. After the credit markets dried up and the world economy went into a tailspin, we didn't see any more large LBOs…until now and until Dell. For a list of other large LBOs leading up to 2007, refer the free LBO "scorecard" here. Anyway.]
The interesting thing about this transition, which is really a combination of a traditional LBO (a Private Equity firm buying a publicly traded firm for a bit of cash and lot of debt raised from banks and others) and an MBO (where management buys out the company from its current owners, who, in this case, are the shareholders) is that Michael Dell is going to not just control but run (Silver Lake Press Release) the new private entity:
Following completion of the transaction, Mr. Dell, who owns approximately 14 percent of Dell’s common shares, will continue to lead the company as Chairman and Chief Executive Officer and will maintain a significant equity investment in Dell by contributing his shares of Dell to the new company, as well as making a substantial additional cash investment. Dell will continue to be headquartered in Round Rock, Texas.
Contributing a lot of money to close the transaction, as he has done, is one thing…but the fact that Silver Lake, whose impressive portfolio of investments can be seen in the picture above, agreed to this transaction and its leadership structure means that they believe, as much as Michael Dell does, in his ability to “unlock value” from privately-held and run Dell.
If this story and the $ amounts involved captured your imagination, you may want to spend a few more minutes on a Bloomberg article that describes the “back story” behind the deal, how it came to be and how negotiations broke down a few times before things settled down.
Good luck to him and Silver Lake. The company’s trajectory over the next several years will be closely watched by everyone in technology and the LBO space.
PS: Where does good old Microsoft come into this picture? Initially it was rumored that Microsoft may also own part of the new Dell by way of an equity investment. But that kind of “vertical integration” into the Microsoft “supplier” ecosystem would have ruffled quite a few feathers – HP, Lenovo and Acer, to name a few.
So instead, it seems to have opted to loan a few billion…which is also unusual, but I guess that will keep the ruffling and associated rumbling, to a minimum.