Will Dell Return To Public Trading? Not So Fast, Say Analysts, Solution Providers

Dell Chairman, President and CEO Michael Dell talks often about the benefits and advantages of running a privately held company, but some on Wall Street are expecting a Dell IPO sometime in the next five years.

Still, there are others on Wall Street, who along with solution providers and other industry watchers, say Dell will put off going public for as long as possible, if the company returns to the public markets at all.

"It's probably going to be about five years," Dave Novosel, senior investment analyst at New York-based bond research firm Gimme Credit, told CRN. "They take it private, make investments, do some things outside the public eye and show improved results. It's not necessarily a finite timeframe, but typically firms like this would like to do it on a five-year timeframe."

[Related: Partners: Dell Is On Target To Compete With HPE, Cisco In The Enterprise Despite Q1 Sales Weakness]

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Going private in 2013 may have helped Dell escape investor scrutiny, but it still faces the challenges of a rapidly transforming and intensely competitive IT market. The company will have to demonstrate that business is booming after its pending acquisition of EMC -- valued at about $62 billion -- in order to successfully go public, some solution providers said.

Dell did not respond to a request for comment.

Dell may argue it has a better shot at success as a private company, but while being private removes the company from the peering eyes of earnings-hungry investors, "they still have to deal with the PC market being down, and competition is fierce," Novosel said. "Those things aren't going to change with Dell being private."

Through its parent company, Denali Holding, Dell generated some less-than-stellar financial results public recently as a requirement of the EMC acquisition. In the first quarter of its 2017 fiscal year, which ended April 29, Dell reported a 3-percent revenue decline, driven by a 3 percent drop in its PC business, flat results from its software arm and a 20-percent drop from its enterprise group.

Dell CFO Tom Sweet argued that the steep enterprise group decline was the result of executing the type of long-term strategy for which Wall Street investors have little patience, noting that the group had hired a new crop of salespeople who are yet to begin showing positive results.

"The idea was that Dell wasn't performing very well in terms of stock performance," Novosel said. "So, they take it private and they'd be allowed to make the investments and change some things without being worried about the stock getting slammed again, increase the value of the firm, and then take it public. Whether or not Dell can do the things that are required to turn this around is questionable. They can make the investments, but there's no guarantee that these things will work."

There's a checklist Dell must address before it can consider a return to public trading, Stephen Sohn, an analyst at Moody's Investors Service, told CRN in an email, including fully integrating EMC, repaying a large portion of the up to $49.5 billion in debt it's taking on to buy EMC and proving it can execute on its enterprise strategies.

"A lot can change in five years, although it does seem like Michael Dell enjoys running a private company," Sohn wrote.

And being private may be better for Dell's channel partners, said Patrick Moorhead, president and principal analyst at Moor Insights and Strategy.

"I think the channel is better off with a private Dell-EMC, knowing that they will focus on the right things versus what Wall Street is asking for, which is driven by a quarterly cadence," Moorhead said.

"I wouldn't expect Dell EMC to go public for many, many years," Moorhead said. "The only thing that could drive this is if the cost of debt increases substantially. Right now, debt equity is the best way to finance Dell-EMC and there is the extra added bonus of being secretive so your competitors don't know what you're doing and you can make those tough, strategic choices earlier versus pandering to the street."

Michael Thomaschewski, director of infrastructure at Long View Systems, a Canada-based solution provider that works with both Dell and EMC, said the possibility of going public again hasn't come up in his conversations with Dell and EMC teams.

"It could be possible," Thomaschewski said, "but I wouldn't expect it for at least 18 to 24 months. The merger would be far too disruptive, and getting programs aligned would take too much time and effort."

Michael Pearson, president of DSA Technologies, an Elk Grove, Calif.-based Dell solution provider, said Dell has to overcome some significant challenges before it can consider going public again, including a soft market for IPOs and "uncertainty about whether Dell can successfully grow the EMC/VMWare business."

"Partner and product integration are huge tasks for Dell," Pearson said, "and they have shown some struggles, primarily around speed of execution, with accomplishing this in the past."