Dell Acquires EMC: A Turnaround In Company Strategy

In one of the largest M & A deals in the technology industry and two years after its privatization by founder Michael S. Dell and Silver Lake, Dell bought data storage and software company EMC for $ 67 billion. According to the Wall Street Journal, this deal was 8 months in the making and involved more than 50 confidential meetings between Michael Dell, EMC chief Joseph Tucci and top dealmakers including Jamie Dimon from J.P. Morgan, the lead advisor on the transaction. In my opinion, this deal marks the first strong move of turnaround strength since the company was taken private due to large amounts of debt and poor quarterly performance 2 years ago. Dell also paid down nearly $4 billion of debt in order to improve its credit rating and has benefited in this environment of low interest rates and cheaper debt. While Dell still faces the challenges of servicing its earlier debt, flagging recent operational cash flows compared to the previous year and servicing the $40 billion of debt raised for this deal, the bid for the profitable and growing firm EMC marks a consolidation of service offerings and may go on to have a reasonable upside. In the first half of its latest fiscal year, Dell’s revenue, net income and cash flow from operations were all lower than in the same period a year earlier. The latest step to acquire EMC, whose core enterprise storage unit is growing, and 80% of whose market capitalization is added by subsidiary cloud storage company VMWare can allow Dell to move away from personal computing to more profitable business clients and cloud enterprise services. Most of the premium in the $33 a share received by investors in EMC actually comes from VMWare and its nascent (but fast growing) cloud services and server virtualization products. What remains interesting to look at now and in the coming few weeks is how Dell can prove skeptics wrong by integrating the EMC enterprise business units bearing strong free cash flows on one hand while juggling high debt repayment, flagging revenues and an increasingly competitive traditional market on the other

Karan Magu Class of 2017