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Dell in $24 Billion Deal to Go Private

Dell announced Tuesday that it had agreed to go private in a $24 billion deal led by its founder and the investment firm Silver Lake, in the biggest leveraged buyout since the financial crisis.  —  Under the terms of the deal, the buyers' consortium …

DealBook Michael J. De La Merced

Context & Ripple Effects

Dell’s agreement follows January reports that it was exploring a private-equity buyout after the company lost almost a third of its value over the preceding year. Its quarterly sales had also fallen below analyst expectations.

The proposed transaction puts founder Michael Dell and Silver Lake at the center of a strategic reset after Dell exited smartphones and dropped Android, making ownership structure part of the response to weakening public-market performance.

First-order effects

  • Michael Dell and Silver Lake become the proposed owners responsible for financing and directing Dell’s turnaround; upon completion, Dell would leave the public market.
  • Dell shareholders must evaluate the consortium’s offer against the company’s weakened valuation and operating performance.

Second-order effects

  • Silver Lake’s investment case depends on Dell improving the businesses behind its sales shortfall, shifting management’s focus from meeting quarterly-market expectations to executing under leveraged ownership.
  • The size of the transaction makes Dell a prominent test for lenders and private-equity firms considering financing large technology-company buyouts after the financial crisis.

Third-order effects

  • If the deal closes and Dell improves under private ownership, it would strengthen the case for using leveraged buyouts to restructure mature hardware companies whose public valuations have deteriorated.
  • The transaction also concentrates strategic control of a major PC vendor with its founder and financial sponsor, rather than dispersed public shareholders.

The trend: Large technology companies facing weakening public-market performance are becoming candidates for private-equity-led ownership restructurings.

Related: Compute finance · Dell · Dell Said to Be in Buyout Talks With Private-Equity Firms

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