Dell's $24.4 billion deal to go private is a sign of the times. The PC market is collapsing, Microsoft is trying to save it, and the IPO isn't what it used to be.
The company is about to get a major transformation. Once the deal is completed (with a $2 billion loan from Microsoft as part of the financing), it will be owned by Silver Lake Partners and Dell founder Michael Dell. But what exactly does going private mean for the company? What impact will it have on the markets?
Here are a few potential consequences of the deal:
1. Dell be nimble, Dell be quick
Part of the reason Dell decided to go through the trouble of a leveraged buyout was that it would help it become a nimbler company. Without the public markets, analysts, and the Securities and Exchange Commission to answer to, Dell CEO Michael Dell can theoretically make quicker decisions that will let it respond to Apple and Google.
It remains to be seen whether Dell will actually become more nimble -- it is still a multibillion-dollar corporation, after all -- but if Dell didn't do anything drastic, it was never going to make a significant recovery.
There is another potential benefit to going private: Dell can now implement long-term strategies that may eat up short-term profits. Dell would be hammered on the public markets for declining profit margins, even if they were going to help long-term, but the company will face no such problem as a private entity.
2. Microsoft's awkward relationship with OEMs becomes more awkward
One of the most interesting parts of the deal is that Microsoft chipped in a $2 billion loan to help get the deal done. In the past, Microsoft just offered the software (Windows) and the OEMs provided the hardware to go with it. Microsoft didn't play favorites or hold stakes in any of its partners.
Of course, that was thrown out the proverbial window (ha) when it created its own competing hardware -- the Surface tablet. It resulted in strained relationships with HP, Dell, and many of its longtime partners, and I doubt the Dell deal will help, even if Microsoft promises total independence.
3. Can anyone stop the decay of the PC ecosystem?
Let's face it: the PC ecosystem is in free fall. Sales dropped by 6.4 percent from the fourth quarter of 2011 to the fourth quarter of 2012. Dell itself was down a mind-blowing 20.8 percent from the last holiday quarter. This isn't a new phenomenon -- PC growth has been declining since the iPad was released.
Dell's move would not have come if the foundations of the PC ecosystem weren't crumbling. Windows 8 sales are lagging, despite what the people in Redmond would like you to believe. The move to privatize could give it leeway to try riskier strategies, such as adopting other operating systems (despite Microsoft's $2 billion loan).
I doubt this move will change the state of the PC ecosystem, though. Everyone sees the decline, and PC tablets probably won't be enough to stem it.
4. Michael Dell's legacy
Michael Dell is one of the most successful entrepreneurs of our generation. He created a multibillion dollar company from his garage and became a billionaire in the process. He strongly identifies with the company that bears his name. But his return to the helm after he stepped down as CEO in 2004 has not been smooth, and it certainly can't be compared to Steve Jobs' return to Apple.
Some speculate that Michael Dell is preparing to step down as CEO, but I don't see the evidence. Why step down when you have the greatest opportunity in your life to make an impact at the company you founded?The company going private will define his legacy, and he knows it. If the privatization deal succeeds, he will be known as one of the great CEOs of our time. If he can't turn things around, he will be a footnote in the history books.
5. Is this the beginning of the end of the IPO?
In the past, the IPO was the culmination of an entrepreneur's hard work, building an empire from the ground up. But now, companies are finding ways to avoid the IPO and the regulatory nightmare that accompanies it.
It's well-known that Mark Zuckerberg never wanted to take Facebook public, but essentially had no choice. And who can blame him? Quarterly financial reports, stock market roller coasters, and hostile takeovers just aren't fun.
Dell's move to privatize just underscores how burdensome being a public company actually can be. And with recent SEC rule changes making it easier to stay private for longer, why go public?
Let's be clear: most companies will still go public, because the early investors expect it. But don't be surprised if that mindset changes over the next decade. We may have to rewrite all the rules of the IPO if this trend continues.