6 Reasons Dell Should Go Private10:00 AM EST Wed. Jan. 16, 2013
Reports that Dell is exploring the possibility of going private caused the company's stock to jump 13 percent Monday, (It's up another 3 percent in afternoon trading Tuesday, too.) Would it be a wise move for the company?
Analysts including Stifel Nicolaus' Aaron Rakers and Joseph Quatrochi believe so, noting in a report that Dell could go for close to $20 billion (at $14 per share) as it looks to continue its "ongoing transformation from client/PCs to enterprise solutions (a transformation that we continue to view as a positive)." With that in mind, here are six reasons why Dell would be wise to consider a private equity move now.
Dell's shares declined 30 percent in 2012, among the worst performers among top technology vendor stocks tracked quarterly by CRN. That might make it more attractive to potential buyers right now, who wouldn't want to wait for the stock price (and the buyout cost) to jump. Granted, Dell reportedly has about $5 billion in cash in the bank, but a quicker sale could also give Dell faster access to cash it needs to fuel its own acquisition targets.
One of the big benefits of going from public to private is being able to invest more into research and development without having to satiate the profit expectations of investors. So said Joe Wang (pictured), CEO of WatchGuard Technologies, who told CRN what helped his company after going private in 2006.
As a private company, Dell theoretically would be able to be more nimble in its decision-making because resources wouldn't be so tied up in other areas. That might allow the company to come to market quicker with new services like the cloud computing for retail solution unveiled Monday. Behind private equity, Dell could get more aggressive and take more chances that it might not otherwise do now.
Public companies tend to think in shorter cycles: three months, six months or nine months at a time because that's all they can afford to think about given that they are beholden to investors who want regular, consistent returns, said Watchguard's Wang. As a private company, Dell could take a longer-range vision of its transformation from a PC/server-based company to more of an end-to-end enterprise-class solutions company.
While all companies, public and private, have to ensure compliance in one form or another, public companies are held to more and tighter requirements to what they can and cannot do, say and cannot say. In many cases, it requires significant resources to ensure compliance, costs that have an impact on profitability. Without those costs, Dell theoretically could make more money.
There's one thing that private equity firms know how to do really well: drive future value for their portfolio companies. So while Dell might be making money now, private equity could help Dell complete the vision of transforming itself into the enterprise solutions power that CEO Michael Dell wants the company to become.