DELL TECHNOLOGIES 

Why Dell might be considering an IPO 

Posted January 26th, 2018

Less than five years after becoming a private company, could Round Rock-based Dell Technologies become public again?

News reports on Thursday indicated that Dell’s board is weighing revenue-boosting options that include an initial public offering as the company tackles massive debt following its $67 billion purchase of data storage firm EMC Corp. in September 2016 and the $25 billion cost of becoming private in October 2013.

But while Dell could be looking to better manage its debt, some industry analysts say the IPO consideration could be driven by several factors.

Rob Enderle, an analyst with Oregon-based Enderle Group, said Dell could be facing pressure from certain investors to take the company public so they can receive a greater return on their investment, which would be expected with an IPO.

“There’s constant pressure for companies to go public,” Enderle said. “Investors don’t get as many transactions with a private company, so this was always going to have to be (Dell) having to buy out those large investors or go public because investors want a return on their money.”

On Friday, Dell spokesman Dave Farmer said the company “does not comment on rumor or speculation.”

While the IPO consideration shows possible signs of financial stress, analyst Roger Kay with Endpoint Technologies Associates said it also comes after Dell has shown overall good progress in recent years.

Dell has been steadily paying down debt. In December, Dell reported that it had paid down $9.7 billion in gross debt since its purchase of EMC, with the company still carrying about $52.5 billion in total debt.

It also reported $19.6 billion in sales then for its fiscal third quarter, growth of more than 20 percent year over year. The company, despite being private, has been reporting its finances due to a stock it created through its purchase of EMC.

“Overall, (Dell) is still a good operating company with lots of business and a good portfolio,” Kay said, adding that Dell could end up just having to “refine some things and change some things,” rather than go public.

Dell could also be exploring options because of a new federal law that drops the corporate tax rate from 35 percent to 21 percent. The significant reduction, Enderle said, could put companies like Dell in a better position to move forward with an IPO, even though Dell could also be hurt by a new measure in the law that allows companies to deduct only 30 percent of the interest paid on their debt.

“This would be the year to do it,” Enderle said of an IPO. “The tax changes have had major impact on how companies think about things.”

Besides a possible IPO, Dell is also examining whether to purchase the rest of cloud infrastructure firm VMWare, according to reports in The Wall Street Journal and Bloomberg News.

After taking his company private, CEO Michael Dell said in an op-ed piece published by the Journal in 2014 that the move had allowed Dell to focus more on its operations, since Dell no longer had to answer to shareholders.

Still, it’s not unusual for companies to jump back and forth between being private and public, Enderle said, nor is it unusual for companies to consistently discuss going public. Dell has had some time now to figure out how its partnership with EMC could work, he said.

“This would not stop their growth but return to a more organic growth,” Enderle said. “But they have to find a way to fund it. Access to capital is very important, and executive staff on a quarterly or annual basis goes through this practice.

“All this indicates is that they are just looking at their options.” 

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