Dell Buyout Talks Reportedly Advance, But Can It Happen?


Talks between Dell and financiers about a private equity buyout have reached a stage where four major banks are lined up to provide financing with buyout firm Silver Lake leading the deal, according to a report by Reuters.

Meanwhile, Silver Lake has raised more than $7 billion for its latest fund, according to Bloomberg. A leveraged buyout of Dell could require up to $22 billion, the report said.

Shares of Dell increased 13 percent on Jan. 14 after initial rumors about a deal were reported and closed up another 7 percent Tuesday at $13.17; shares closed down 4 percent to $12.61 Wednesday.

[Related: Dell Rolls Out Cloud Service For Retail Stores]

Dell's stock in 2012 ranked 30th among 35 vendors tracked by CRN, falling nearly 31 percent for the year.

Silver Lake manages about $14 billion in investments and includes stakes in Avaya, Business Objects, Flextronics, Seagate Technology, SunGard Data Systems and Skype among more than two dozen technology firms.

Even while grabbing headlines, an actual buyout is far from a sure thing at this stage, according to at least one analyst. Brian Alexander, managing director of equity research, technology hardware and distribution, for Raymond James & Associates, noted in a report that a $20 billion-plus deal could prove too difficult to fund. Also, he said "levering up Dell would impede financial flexibility for more M&A, a key element of the growth strategy."

In addition, recent tax rate increases could be too much at this time.

"A hefty debt burden in conjunction with a leveraged transaction could hamper financial flexibility to pursue more acquisitions and stifle the company's ongoing transformation. We note that Dell recently outlined its desire to build a $2 billion software business and is less than halfway to its goal. Realizing this objective is likely to require $2-3 billion in liquidity," Alexander wrote.

Eric Kehmeier, managing partner of Integrated Business Technologies, a Broken Arrow, Okla.-based VAR, said he's not sure a buyout would happen either or that it would impact his business either way.

"We're waiting to see what happens just like everybody else," Kehmeier said.

PUBLISHED JAN. 16, 2013