Dell, Silver Lake Gain A Reported 90% Year After LBO

Dell, Silver Lake Gain A Reported 90% Year After LBO
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Before the recession, Dell Inc. (NASDAQ:DELL) was an industry leader in the PC movement.  Early 2000s were a simpler time that consisted of rising home prices, minor recession in 2003, two wars, iPod was gaining popularity and the only kind of cell phone was a flip phone.  Personal computers were all the rage, as individuals and enterprises continued to turn to the likes of Dell and Hewlett-Packard Company (NYSE:HPQ).  Then the recession of 2008 hit and PC sales began a long term downtrend that began to fundamentally alter companies like Dell and HP, because their traditional business was faltering and they were in search of revenue sources.  Years down the road, the recession begins to subside and growth begins to pick up again, PC sales still remained low and in a downtrend.  Today, Dell and HP do not even look the same anymore.  HP is breaking up the business into separate segments and is now focused on data storage, cloud, and 3D printing.  Dell was taken private by its founder, Michael Dell and Silver Lake Management LLC in 2013.

Silver Lake investing in Dell

Focusing on Dell, once the king of the PC industry, Silver Lake took a chance last year by investing $1.4 billion in Dell and helping taking the company private.  Michael Dell sunk $4.2 billion into his company to help take Dell private.  In total, the deal to take Dell private totaled up to $24.9 billion, but a year later, this appears to have been the right move.  Today, it is estimated that Dell has equity value of around $10.8 billion, nearly double of what Silver Lake and Michael Dell contributed a year ago.  With gains of 90%, sources close to the situation say, what is different now?

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For one thing, the PC industry is finally beginning to bottom and show signs of growth.    According to IDC, PC sales for the 3rd quarter 2014 fell only -1.7%, compared to estimates of falling -4.1%.  In the past year, Dell has increased its market share to 13.3% from 11.9%.  Additionally, the recession has made the business more diverse, so now Dell equally focuses on its other business segments such as data storage, software, security, analytics, etc.  Cash flow is forecast to reach $3.5 billion in fiscal 2015, up from cash flow of $3 billion a year ago.  Additionally, the company has taken the opportunity to pay down some debt, seeing debt holdings decrease from $18 billion to its current ledger of $15 billion.

Dell going private was the best thing ever

Overall, Dell executives have stated that going private was the best thing for the company and it really allowed management to turn the business around without facing shareholder scrutiny.  Customers have praised Dell’s turnaround and stated that the company runs a lot more efficiently and faster than in years previous.  Private Dell was able to enter and close acquisition of StatSoft, a data-analytics company, much faster than it would have been able to do if had still been publically traded.  All in all, the PC industry is regaining some footing and now that Dell is more diversified and efficient, it could come back stronger than ever in the next several years.

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