A Dell deal has to be one of the riskiest tech buyouts ever. Dell, with it huge hardware bias, is a falling knife.
The $24bn (£15.6bn) question is what any protagonist would be attempting to buy. Dell does not have any significant recurring revenues, nor does it have as big a patent portfolio as many other tech majors.
Dell is trying to change, but it takes the best part of 20 years to transition a business fully from hardware to software. That is the time it took IBM to reinvent itself. Dell is only five years into this process, so has at least a decade to go.
Buyouts, at the top end, reach $30bn. First Data Resources achieved a $30bn valuation but all its business was from predictable stable recurring revenue. Size doesn't insulate a business from failure, and some of the largest have the patchiest histories.
Examples such as SunGard and Freescale have obviously struggled, while more broadly the largest deals can fail the most spectacularly: witness TXU Energy and RJR Nabisco.
It seems absurd that any investors would pursue Dell when businesses such as Nokia, which is half the price and has a huge patent suite, and HP, which has twice the revenue and a host of patents, are apparent candidates. HP, despite its difficult recent history, looks a far less risky bet.
If a credible investor has $24bn to spend, there are several significantly more interesting opportunities available.
An investor could consolidate several rapidly growing next generation cloud businesses for a fraction of this amount. Alternatively, an investor could buy Spotify, Shazam and SoundCloud and 'own music', with many billions left over.
It is difficult to see a rationale, in other words, for a stretching acquisition that we believe has little prospect of creating the $50bn business that investors must surely be betting on to justify buying at this price.
Victor Basta is managing director of Magister Advisors
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