The recently announced $24.4bn acquisition of Dell Inc. has been at the forefront of private equity news this week, due to the fact that this is the largest announced private equity-backed buyout deal since the global financial crisis. Details of the mega buyout include the surprise entry of Microsoft as a provider of a $2bn loan to support the transaction, rather than a previously expected equity stake. The deal is highly leveraged, with a $13.75bn debt package reported to be provided by a consortium of banks, including Bank of America Merrill Lynch, Barclays, Credit Suisse and RBC Capital Markets. A large investment is to be provided by Michael Dell, Dell’s founder, chairman and CEO together with private equity support from Silver Lake, likely to provide a $1.4bn equity amount and MSD Capital, which is the personal investment vehicle run by the founder.
The Dell acquisition ranks 8th in the rankings of largest private equity-backed buyout deals from 2006 to present, and is the largest recorded private equity-backed deal in the information technology sector over this period. Prior to the acquisition of Dell, a deal of such scale was last witnessed in July 2007 when Blackstone Group took Hilton Worldwide private for $26bn which was approximately 81% leveraged. Similarities between the Dell and Hilton Worldwide acquisitions are the high percentage of leverage as well as the shares being bought at a premium to the market share price (at time of the offering)- 40% and 25% premium, in the case of Hilton Worldwide and Dell, respectively- both of which are characteristics of the public to private investment type. The largest 10 private equity-backed buyout deals from 2006 to present were all public to private transactions, of which 9 of these deals took place in the buyout boom era. This period between 2006-2007 was a phase of positive market sentiment and more stable credit conditions, which is essential as credit availability is key for privatisations to reach completion.
This privatization of Dell does lead to speculation about what lies ahead for the rest of the year in terms of large private equity-backed buyout deals, as this mega buyout may be an early indicator of returning optimism in the global economy and improving credit conditions, both of which are precursors for more high net worth deals to take place.