Picking off the slow-movers: $15bn for tech PE now sloshing around at Silverlake, more to come

Silver Lake plans to announce on Tuesday that it has closed its fifth buyout fund at $15 billion, one of the biggest ever dedicated to technology deals. That exceeds the $12.5 billion fund-raising target that the firm had previously aimed for and brings the firm’s total assets and committed capital to about $39 billion.

They seem to get good returns:

Silver Lake’s fourth fund, with $10.5 billion under management, currently boasts returns of nearly 31 percent, according to the data provider PitchBook.

Meanwhile, as Dan Primack mentioned, you can expect $100bn from SoftBank.

What this means is that more older, lower growth software companies will be taken private. More than likely, their day-to-day operations will be optimized to get their cash-flow fixed up and increase profits. These companies can then act as cash machines and find some exit after the PE owners “fix” management and operations problems at the company.

That usually means consolidation, which results in firing people, but also fixing stubborn “frozen middle” problems that have preventing each product line from evolving and getting a better ongoing product/market for, meaning: being something that customers want to use and keep buying. There can also just be a lot of “bloat” in older product lines, esp. when it comes to effective product management, marketing, and developers following old, slow, but comfortable processes.

And, sometimes, as you see at IBM, you just have to shut down old business in favor of building new ones. This means a top-line revenue hit, which means slowing or killing quarterly growth. As IBM has been demonstrating for 20 quarters, when you’re public, ain’t nobody got time for that. In theory, when private, you can choose that option.

As Brenon at 451 has noted, going private deals like these are growing much more than “corporate” acquisitions (like when Microsoft, Cisco, IBM, etc. buy a company to integrate into their product portfolio rather than optimize the company as discussed here). It doesn’t always work, but that “nearly 30%” return indicates that it works more than enough.


Final prices for Dell Services and Software divestitures: $3bn & $2.4bn

On March 27, 2016, Dell entered into a definitive agreement with NTT Data International L.L.C. to sell substantially all of Dell Services for cash consideration of approximately $3.0 billion. On June 19, 2016, Dell entered into a definitive agreement with Francisco Partners and Elliot Management Corporation to sell substantially all of Dell Software Group for cash consideration of approximately $2.4 billion.


Living life one quarter at a time, maybe it’s fine

Tyler Cowen suggests that we shouldn’t be freaked out by the emphasis on quarterly returns. Many public companies companies blame making quarterly numbers as a reason for short term planning, versus long term (one assumes) innovative strategies. The pieces suggests that that short sightedness may have a reason:

In information technology, the average life of a corporate asset is about six years, in health care it is about 11 years, and for consumer products it runs about 12 to 15. Very often it is hard for a company to plan its operations beyond those time periods, as the U.S. economy is no longer based on durable manufacturing machines. Production has shifted toward service sectors with relatively short asset lives, and that may call for a shorter-term orientation in response.

And, throw in all the “change or die”, digital transformation stuff and who knows what tomorrow will look like? As a counter, re-jiggering a company to be “digital” can take time. But, as Coleen suggests, investors don’t always seems to punish that (I’d add, if they have faith in management and the culture of the company):

Equity markets do not seem to neglect the longer run. Amazon has a high share price even though its earnings reports have usually failed to show a profit. Possibly the market judgment is wrong, but it’s hardly the case that investors are ignoring the long-run prospects of the company.

Further more, if I doesn’t work out:

If public shareholders are placing too much short-term pressure on their companies for a good quarterly earnings report, companies have the option of boosting their value by going private, as has been the trend. By 2012, the number of U.S. public corporations was less than half what it had been in 1997, in part because many companies went private. This is possible evidence that there have been problems with corporate short-termism, but on the other hand it shows that a market response is possible. Good governance is a scarce resource, and it may be that markets concentrate it in the places that need it most.

Source: Is corporate thinking too short-term?

Dell details its vision as a private entity (451 Report)

Dell Annual Analyst Conference 2014 #DAAC

Following up the Dell Annual Analyst Conference from a few weeks back, Simon Robinson and I myself wrote up an overview report on the state of Dell. As every with Dell, things sound good, but there’s plenty of execution ahead for the company. 451 clients can read the full report, and here’s the 451 take:

We noted when the LBO first closed that this event doesn’t actually change much at the company. The strategy Dell discussed last week is fundamentally consistent with the one it has been pursuing for several years. Perhaps the biggest impact initially will be on its executive team – CEO Dell says he got back 20% of his time through not having to deal with Wall Street, while board meetings now last just 10 minutes. This is not to say that being private won’t make a difference. Although it’s not an issue for most customers, the main difference may be in how employees and partners feel about the company.

Related to this is the issue of how Dell presents itself to the outside world. Now more than ever, as a private concern, it needs a clear and strong voice, and developing this remains a work in progress (the initial post-LBO messaging around ‘the world’s largest startup’ was not in evidence at the analyst conference).

We feel part of the challenge remains to articulate a single vision that resonates with a broad target audience of consumers, SMBs and large enterprises. Another issue is for the company to create and emphasize a stronger sense of differentiation in its offerings. Nonetheless, the renewed energy and enthusiasm Dell talked about is in evidence among its senior executives. Its challenge now is to ensure this percolates down through its 100,000-strong workforce. Only then will a real sense of its long-term differentiation emerge.

If you’re not a client, sign up for a trial and mention that I sent you.

You might also like to take a look at some recent spending survey data from 451:

Buried in the detail there is the good news that 10% of enterprise customers surveyed are spending over $5m with Dell, compared with just 3% in prior surveys, a significant improvement but not sufficient in itself to reinvigorate corporate growth.

Chart on Dell spending, y/y

Also, Dell is quit good at uploading lots of photos from it’s event to flickr: check out the set they have from DAAC.

Dell details its vision as a private entity (451 Report)

Privately innovating instead of publicly growing

When I spent time with other entrepreneurs, the feeling was ‘go public’. Now you have ‘stay private longer’, because then you can invest, innovate. The minute you go public, you have this incredible pressure to increase earnings every single quarter, quarter after quarter. I am not saying that is all bad. There are companies that are perfectly good for it, but it has a real downside as well.

Privately innovating instead of publicly growing

Dell IR: we’re going to go hang with the nerds now

One of the more significant changes is that our financial results will be restricted to current institutional debt investors, prospective institutional debt investors and debt research analysts. The financials will only be disclosed under non-disclosure agreement (NDA). Given the restrictions on our financial disclosure, we will not be discussing our financial results with broad audiences at large equity conferences as we have done in the past. You will see us more active and participating in technology-focused conferences where we will provide updates on our progress as a technology leader and discuss our latest innovations and solutions we are delivering for customers around the world. In addition, we will identify key opportunities to have smaller group meetings with investors on the road, on premise and at debt conferences.

Dell IR: we’re going to go hang with the nerds now

More on BMC’s private plans

We’re all curious what Dell and BMC are going to do now that they’re private. I hope a lot of “crazy” stuff, myself, otherwise: why go private?

Here are some comments from BMC’s VP Asia Pacific, Chip Salyards:

“With a publically traded company you are on these 90 day cycles so you can’t change from an on-premise model to a SaaS model. You are a little bit restricted in the investments made and how great you can make them.”

“What we really needed to do as a company to get that next phase [of growth] was longer term investments … Our [private] investors want a bigger return [on their capital] … but knowing that they have to make some investments.”

This investment, Salyards said, would be in three main areas: cloud, big data, and SaaS. In addition, the company could also invest in its mainframe offerings. For instance, Salyards said the company would move to offer scheduling on mainframes using Hadoop.

More on BMC’s private plans