After a period of restructuring and digital transformation following its $67 billion acquisition of EMC Corporation in 2015, Dell Technologies is re-entering the public market. Five years ago, Dell went private due to uncertainty regarding the PC market. The company had yet to develop a strong presence in cloud computing and had a limited IT infrastructure lineup in some areas as well. When Dell went private in the $25 billion deal, the company was able to focus on pleasing customers rather than investors. Dell founder and CEO Michael Dell had survived a buyout attempt by investor Carl Icahn to regain control of the company on Oct. 29, 2013. "Today, Dell enters an exciting new chapter as a private enterprise," Dell said in a statement that day. "Our 110,000 team members worldwide are 100-percent focused on our customers and aggressively executing our long-term strategy for their benefit." At that time, he told a conference room of Dell employees, "It's great to be here and to not have to introduce Carl Icahn to you." Anatomy of The Dell Deal In a $21.7 billion deal announced on July 2, 2018, Dell will exchange a Class V tracking stock called DVMT that monitors the performance of VMware for a new class of common shares called the Dell Technologies Class C stock. The company will exchange Class V common stock for 1.3665 shares of Dell Technologies Class C common stock. The Class V shares will be worth $109 per share. The deal will close in the fourth quarter of 2018 and is subject to Class V stockholder approval. Dell generated $21.4 billion in revenue in the first quarter of 2018, a 19-percent increase year over year, according to the company. Silver Lake Partners, the private equity firm that gained a share of Dell when the company went private in 2013, will continue to maintain its same share of Dell. In a statement, Egon Durban, Managing Partner and Managing Director at Silver Lake Partners, said that the deal would keep Dell "strategically positioned to take full advantage of the new era of emerging technology trends, including Internet of Things (IoT), artificial intelligence (AI), machine learning (ML), 5G, cloud computing, and mobility." In a call with investment analysts on July 2, 2018, Dell boasted that his company has increased PC share for 21 straight quarters and leads in revenue for that category as well as x86 servers. In addition, in the first quarter of fiscal year 2019, he said the company's non-Generally Accepted Accounting Principles (GAAP) revenue was up 17 percent year over year, the company's highest mark for quarterly year-over-year growth since 2011. "You know, earnings were up, strong double digits, and this is about simplifying our capital structure and exposing the value that we've created to shareholders," Dell told CNBC on July 2. Dell owns 72 percent of Dell Technologies common stock and Silver Lake Partners owns 24 percent. "It makes it easier for Dell, as they become public, to start exercising some of the benefits of being a public company with public equity, but still allowing Michael and Silver Lake to have a large degree of control," said J. Craig Lowery, Research Director for Cloud Service Providers at Gartner Research and a former Dell executive.  Why Dell Made the Deal The company declined to make a Dell executive available for this article. However, in the July 2 call, Dell said that the move to go public would be a way to simplify the company's structure and provide more flexibility for the business. This was in response to a question from Shannon Cross, analyst and owner of Cross Research. "As you know, earlier this year, we kicked off this process, looked at the various alternatives, and concluded that this was a great way to not only simplify the structure but create flexibility for us and expose the great businesses that we have here back to the public markets," Dell said. @TomSweet, Chief Financial Officer at @DellTechnologies, said the company plans to simplify its product lineup roadmap for storage and data protection solutions. Dell has been consolidating its storage offerings following its acquistion of @EMC, and is a formidable maker of network attached storage ( #NAS ) appliances and other #datacenter infrastructure. After the successful integration of EMC's businesses, including @Pivotal, @RSA, @Virtustream, and @VMware, into the @Dell Technologies portfolio, now was a good time to go public. "And this timing of going back into the public market, I think, is based on the execution of the integration of the EMC deal. It's gone very well," Gartner's Lowery said. "The value of having the EMC portfolio, and the synergy of VMware and all the other companies that come in the EMC portfolio aligned with Dell, that's all been shown to be real." Following the EMC merger, Dell Technologies paid off debt and sold off Dell Services and its software businesses, including Quest Software and SonicWall. "They started selling some of the smaller divisions, and they had good operating profit and cash flow. They were paying off debt regularly there, and were paying it off in big chunks," said Roger Kay, founder and President of market research firm Endpoint Technology Associates. "They got past the risky part of the transaction, and now they're in a pretty stable position. "Maybe it was a good time to go back to the public market," Kay continued. "It doesn't quite explain why Michael was so happy to have gone private in the first place, and why he's equally happy with going public again. I expect it's because he made money personally and that's the answer to the question." Analysts also say the Trump administration's 2017 tax legislation, the Tax Cuts and Jobs Act (TCJA), was a factor in making the deal happen. "The Republican tax plan that was implemented a few months ago included provisions that reduced or eliminated companies' ability to deduct the interest they pay on loans and debt," said Charles King, President and Principal Analyst at Pund-IT. "That directly impacts Dell, even though it has paid down a substantial portion of the debt it took on to purchase EMC." In addition, the deal will position Dell for future acquisitions, according to industry insiders. "As Dell goes public, it's probably going to start pursuing more mergers and acquisitions," Gartner's Lowery said. "So I expect that we will see them shake the market up and start going to look for targets." What It Means for Customers The deal will likely keep Dell focused on the same long-term growth plan and end-to-end product strategy it had while the company was private, it reported. By offering end-to-end IT hardware along with effective infrastructure management tools, the company says it will be positioned strongly enough to back up its marketing slogan of servicing customers "from the edge to the core to the cloud." Dell, along with Lenovo, is one of two Tier 1 IT vendors that have this type of end-to-end strategy, but will going public affect Dell's customers? "I don't think that customers are going to see an immediate change," Lowery said. "I think, long term, it improves things for them because it puts Dell on a path to continue to expand its capabilities, products, and services." The real change is how Dell focused on its customers when the company went private, according to Endpoint's Kay. "When Dell was able to focus on fewer constituencies rather than keeping a weather eye out on investors, they could keep both eyes focused on customers and they did," Kay said. He doesn't expect this focus on customers to change after Dell goes public. What the Deal Means for VMware Under the deal, VMware, which owns the mobile device management (MDM) company AirWatch, will remain independent as a separate, publicly traded company, with Dell owning 81 percent of VMware common stock. "This transaction simplifies our capital structure while maintaining VMware's independence," said Tom Sweet, Chief Financial Officer at Dell, in the July 2 call. Sweet explained that letting VMware maintain its own currency on the market and financial flexibility could help with recruiting talent for the virtualization software company, which specializes in software-defined IT infrastructure. Dell will continue to invest in software-defined technology through its stake in VMware, Dell said. Via a software-defined architecture, the software layer not only controls management features, but also directly controls the data center's compute, network, and storage infrastructure on the same virtual layer. This represents not only cost and implementation advantages, but also a new level of response time should the larger business' needs change abruptly. "Prior to Dell's announcement, there was speculation that Dell and VMware might merge into a single entity," Pund-IT's King said. "That seems to be off the table." Moving Forward Without Big Changes Dell plans to continue to grow in multi-cloud management, application development, and data analytics. The plans to go public will not lead to big changes in product strategy in the short term, the analysts said. "I don't think it'll have anything to do with the asset side of the balance sheet," Endpoint's Kay said. "The project strategy, goals, all that stuff is the same." Pund-IT's King agreed that Dell likely wouldn't introduce significant changes in its data center-focused products and services in the short term. "However, that's likely to change as emerging technologies, like IoT and AI, become mature," he said. "Dell is well positioned to pursue those opportunities." In response to a question about whether or not there will be management changes following the move to go public, Dell said he doesn't foresee changes in management strategy. "The simple answer is we don't anticipate any changes," Dell said. "I think if you look at the last five years, we've been consistently investing for growth and it's been working. We've had steady, strong share gains across our businesses. And we intend to continue to do that."
