Many of us have seen, and been following, the story of Dell’s attempt to go private in a Leveraged Buyout. This may be just another sign of turmoil in an already turbulent space, but what does it mean for the future of Dell?

A little background…Dell announced recently their intent to go private in a Leveraged Buyout with the private equity backing of Silverlake Partners and Michael Dell himself – as Dell’s single largest stockholder at around 16%, he announced that he is contributing all his shares to the cause. 

Controversy has already arisen. The offer the Board approved is around $13 a share; analysts and one of their larger institutional shareholders believe this number is much too low given their estimate of the enterprise value of the organization – close to $24 per share. No wonder Mr. Dell is so willingly committing his shares to the cause!

So, what does this mean for the future of Dell? Private equity investors are savvy, self-serving types and deals are typically structured to favor the private equity investor first, even at the expense of the company, its brand and products. Typically, private equity transactions are highly leveraged transactions – meaning a large amount of the purchase price is borrowed money requiring payment of significant debt service (read interest) at a minimum, along with periodic principal reductions. Both of these consume significant amounts of free cash flow and limit the company’s ability to reinvest in R and D, etc. – an area where Dell is already known for its lack of investment. 

Private equity companies are smart. When they enter into a deal, they almost always have an exit strategy defined and begin working toward it as soon as the deal closes. They win in two ways – the management fees they collect during their time of ownership, and the premium they collect when the pre-defined exit strategy comes about. So for this deal, it means they already know what they are going to do to realize their investment return and this can be only one of a couple of things – take Dell public again, or sell them to another private equity firm. 

Do any of these options benefit customers – NO! At its core, this deal is nothing more than a financial transaction to benefit a set of key shareholders and their private equity partners. It is hard to find any part of this deal where the customer will reap significant benefit and see a new, stronger Dell with deeper and richer product sets and a more robust value proposition.

In a very competitive market where commoditization continues at a rapid rate (how important is your choice of Wintel platform? Dell, Cisco or HP can all do the job) this deal enriches key shareholders and equity partners but does nothing to enrich a key constituent – Dell’s customer.