Private Dell would be a better channel friend

Larry Walsh offers a positive channel take on the recent talk Dell may delist

Dell has once again floated the idea of going private, giving it the ability to make decisions and move quickly without Wall Street meddling. If this happens, the channel will become even more important to Dell's viability.

Imagine for a moment that you, a successful entrepreneur who has invested blood and sweat into the development of your business, is told you cannot do something you know is right for your business. Worse, you're told time and again to take action and implement programmes you know will damage your competitiveness, and, ultimately, your brand in exchange for short-term gains.

That's where Michael Dell is standing. Dell, the company that bears his name, has had its ups and downs, but is now on a transformation track that will morph the company once known for its direct PC sales into an enterprise portfolio company. Despite the early successes in adopting more security, networking, cloud and software, Dell remains under intense Wall Street scrutiny for sluggish PC sales, a low penetration in mobile devices and slagging financials.

Reports have suggested Dell has been in talks with at least two private equity firms about going private and ceasing to be a publicly traded company. Dell lost about 40 per cent of its value in the last year, and a buyout would cost about $19 billion at current stock prices.

With more than $5 billion in the bank and a strong cash flow, analysts believe private financing is possible. If it comes to pass, it will become one of the largest equity buyouts in US history.

From a channel perspective, Dell going private probably wouldn't lead to a retreat from the channel. The channel is already contributing as much as a third of Dell's total revenue.

If anything, the channel will become even more important as Dell will need to accelerate growth and cash flow to meet its debt obligations.

Recent examples of tech vendors going private proves out the collateral benefits to the channel. When SonicWall went private, it and its private equity owner, Thoma Bravo, turned to channel partners to uncover new opportunities and expand sales. The same held true at WatchGuard Technologies, which saw channel sales surge since it was taken off the market by a private equity firm.

But there are even greater benefits from Dell or other vendors going private: stealth and speed.

As a publicly traded company, Dell is obligated to disclose its development activities, as what it spends and brings to market affects stock prices. Consequently, Dell has little manoeuvering room for creating something new that may run counter to Wall Street's interests. As a private company, Dell can invest in new products, services and markets without having to worry about what investors think of its strategy.

Wall Street doesn't think much of vision; investors want returns, and the sooner the better. While the Street likes Dell's investments in cloud computing, professional services and security, it also wants short-term fixes to sliding PC sales. This creates a conflict, in which companies like Dell are trapped into expending precious resource in delivering short-term benefits while slowing or sacrificing long-term transformation.

Satisfying nearsighted Wall Street means resellers are pressed to sell products with increasingly lower profitability and marketability. In the end, vendors and their partners lose while Wall Street wins.

This is precisely the reason Kaspersky Lab isn't a public company. The Russian security specialist was on track for going public after it took on venture capital from General Atlantic in 2011. Less than a year later, Kaspersky bought out General Atlantic and told staff there would be no IPO. Why? Because management wanted to run the company as it saw fit; not at the whims of bankers or investors.

Dell actually floated the notion of going private in 2007. At the time, Michael Dell had taken back the CEO reins from Kevin Rollins and was grappling with having to redirect the company that suddenly lost its mojo. Dell said going private would give the company the flexibility to act quickly without Wall Street meddling.

Again, the history of vendors and IT providers that have gone private is that they're able to make expeditious adjustments. What that usually means for tech providers is more and better products that translates into greater market opportunities.

Larry Walsh is president and chief executive officer of Channelnomics

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