Saturday, February 9, 2013

How Dell Tried to Avoid Potential Buyout Pitfalls -

I find this buyout compelling. Compelling in the sense that I applaud Michael Dell for taking his company private. In my opinion, not enough companies, especially large and mature techie companies, go private. Why?

1. Lazy management : There isn't any fanfare once you go private, and for some CEO's, they can't function without the attention. Some leaders/managers need to be in the spotlight, and the spotlight becomes part of the actual part of running the company. The constant bickering or cowering to Wall Street analysts, the Bloomberg and CNBC coverage and the addictive mega buyouts. Another issue is what's the point jumping off the cliff for a company? If you can meet or slight beat earnings estimates, why go the extra mile? And that's the reason why more companies should go private. Private companies have higher costs of capital, less scrutiny and less protection for investors and management.

2. Expensive : It's expensive going private. I mean more on the collateral damage side. Unless management is in good graces with institutional investors, there will always be some sort of disgruntled or pesky person or situation that could make a buyout impossible or bloody. Why go through the bs. Most CEO's would prefer to keep the status quo, make everyone happy and secure a nice golden parachute in the event of some scandal or consistent malaise.

3. Pressure : It's much harder succeeding as private company versus a public firm because of the brand value that being public comes with. I find this counter-intuitive because companies go public for various reasons, not always because they need the money; which would actually be the worst reason to go public. Being private means most people haven't heard of you, and most CEO's hate this. No more analysts fawning over your free cash flow and P/E multiple ( a really ridiculous metric in my opinion). Higher capital costs, perhaps a contraction in market share, talent exit (some employees like working for "big" companies) and other reasons can make it tough on a private company.

How Dell Tried to Avoid Potential Buyout Pitfalls -

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