In an interesting new turn of events, Dell Technologies may be considering a massive IPO to become a publicly traded company once again according to some reports. If this were to happen, Dell IPO may very well be one of the biggest IPOs in history.
To understand Dell’s current situation and plans, it is important to be well versed in their recent dealings and history. In late 2013, Dell CEO Michael Dell and equity firm Silver Lake took the company private in a massive and controversial deal worth $25 billion. This was followed by the acquisition of EMC Corporation for a world record (at the time) fee of $67 billion in late 2016. However, funding these gargantuan deals was no easy feat, and left Dell with $57 billion in debt as of September 2016.
Meanwhile, the stagnating growth and decline in the PC market, Dell’s core business, meant that debt repayment laboured on at a snail’s pace. This mountain of debt made the top hierarchy at the company to float Dell IPO (Initial Public Offering) at the beginning of 2018, and raise capital for investment and debt repayment. Dell’s massive debt burden, however, meant that investors would reluctant to get involved. This consequently meant that any such deal was dead in the water, at least for the time being.
Nevertheless, reports over the past few days seem to suggest a potential Dell IPO could once again be on the cards.
So what has changed since the start of the year to prompt this reassessment?
One primary factor is Dell’s recent upturn in fortunes. In Q2 of Fiscal Year 2019, Dell’s operational cash flow grew by 45% YoY to $2.6 billion. Their total debt also came down from $57.3 billion to $50.3 billion. This prompted Dell to table a $21.7 billion cash plus stock offer to several hedge funds in order to buy backtracking stock tied to Dell’s 81% stake in virtualization software provider VMware Inc.
Tracking stock is a specific share that only pertains to a singular unit of the company rather than the entirety of the business. This would have allowed the company to have publicly traded stock without conducting an actual IPO. However, a deal has failed to materialize once again, purportedly due to the hedge funds’ claims that Dell’s current offer undervalues the tracking stock, and overvalues the company.
Without getting the hedge funds on board, Dell now has one last option remaining if they are adamant about buying back their tracking stock – an IPO. If Dell were to go public via the IPO route, then shareholders of the tracking stock would be obligated to sell to Dell, albeit at a premium of 10-20%. As to what would be the better deal for both Dell and current shareholders, it would be heavily dependent on the performance of the IPO itself. As it stands, Dell and the shareholders are in a standoff, and it remains to be seen who blinks first.
This is a defining period in Dell’s life-cycle as an organization. The company is gradually branching out from its traditional PC manufacturing roots into other information technology products and services including storage, servers, networking and cybersecurity. The outcome of this deal will surely decide whether Dell will remain relevant in the upcoming decade, or slowly fade away into relative obscurity.