Public Markets

Debt-Anchored Dell May Look To Go Public (Again)

Morning Report: Dell’s financial history could get even more complicated as the highly-leveraged, private firm goes public through a smaller company.

Dell, a private technology company that was public, may go public once again but not on its own, according to CBNC. The publication reports this morning that Dell may go public in a reverse merger using VMware, which it currently owns 80% of.

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Fair enough. Dell’s history as a public company didn’t end normally. Instead, its founder took it private in a leveraged buyout that made reporting back in 2013 all the more entertaining. The deal, valued at $24.4 billion at the time, included $2 billion from Microsoft, which is worth remembering. It also bought EMC for $67 billion in 2016, which was described as “a record price for a tech acquisition.”

At the time, TechCrunch noted that the combined entity’s debt load would land north of $40 billion—a heavy anchor to drag back to the public markets if that’s the direction you are sailing.

All of that brings us back to the company’s potential reverse-merger with VMware. As it turns out, Dell going public by itself would be a bear. Here’s Bloomberg Gadfly’s Shira Ovide on Dell’s current health:

Dell’s [adjusted] Ebitda measure, though, excludes a grab bag of items — including stock compensation, the effect of purchase accounting for the EMC deal, severance costs and more. Without those adjustments and using standard Ebitda calculations, Dell’s net debt works out to an eye-watering 9.8 times its trailing 12 month Ebitda.

Using a slightly-less adjusted metric, Dell’s net debt is about 1000% of its heavily adjusted trailing earnings.

Going public by itself might not be the easiest thing. But that doesn’t mean it can’t pull off a re-debut using a friend. As CNBC writes, the VMware would get Dell public, help reduce its debt load, and also, once again, be the biggest deal in technology:

The reverse merger, whereby VMware would actually buy the larger Dell, would then allow Dell to be traded publicly without going through a formal listing. It would also likely be the biggest deal in tech industry history, giving investors who backed Dell’s move to go private in 2013 a way to monetize their deal, while helping Dell pay down some of its approximately $50 billion debt.

How does the Deal end up being bigger than the Dell-EMC fusion? VMware is worth $56.2 billion today after shedding 7.2 percent of its value after the Dell news broke.

Investors don’t sound too stoked. But perhaps if private Dell-EMC was better than private Dell, which was better than public Dell, then perhaps public Dell-EMC-VMware will be the best?

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