Is a Dell Buyout a Threat to Enterprise Customers?

Spend Matters welcomes another guest post from Jeff Muscarella of NPI, a spend management consultancy focused on eliminating overspending on IT, telecom and shipping.

If Michael Dell has his way, he and private equity firm Silver Lake Partners may soon buy out Dell Inc.’s public shareholders and take the company private. Unless, of course, other offers from the likes of Blackstone Group and billionaire Carl Icahn prevail. Forbes’ Abram Brown summed it up nicely when he wrote:

“A truly enchanting, if flawed, narrative is being woven around the potential buyout of Dell, the struggling PC maker whose profit fell nearly 20% last year…. Whoever wins this hunt will take home broken booty. Dell has been badly beaten in the PC game. Sales fell 8.3% to $56.9 billion last year, and profit decreased by 19.3% to $3 billion.”

Would Dell fare better as a private entity unencumbered by shareholder pressures? The answer is uncertain. For the last several years, Dell has struggled to keep pace with computing trends. Performance has suffered in both the consumer and business sectors. However, the reality is that thousands of enterprise customers still rely on Dell’s desktops, laptops, printers and servers.

Ovum, an IT research firm, offers an interesting perspective as reported by Agam Shah at CIO.com:

“Research firm Ovum is recommending that large- and midsize enterprise CIOs start risk mitigation planning in the event that Blackstone or Icahn come out on top and take over Dell.

 ‘Neither Blackstone and Icahn care one bit about whether their “financial engineering” to extract cash from Dell will negatively impact Dell's enterprise customers,’ said Carter Lusher, chief IT analyst of software and enterprise solutions at Ovum, in an email.

‘Blackstone or Icahn would cripple Dell's ability to deliver enterprise technology and services in the short term, and innovation over the long term,’ Lusher said.”

The only thing that’s certain for Dell’s enterprise customers is that they are entering a period of uncertainty and risk. There is no way to know if Dell’s offerings will benefit or suffer from a leveraged buyout. But that doesn’t mean the company’s business customers can’t take precautions and prepare themselves for either outcome. At a minimum, Dell’s enterprise customers need to conduct the following risk-mitigation activities:

  1. Review all existing Dell agreements to understand terms and commitment. Customers need to be agile as they navigate the implications of Dell’s trajectory, whatever it may be. This requires a clear understanding of the current contract structure, terms and conditions, and financial commitment. Is now a good time to renew? Or is the next renewal an opportunity to move away from Dell? These questions are highly dependent on the current contract state.
  2. Plan to competitively source all upcoming Dell-related products and services. In this case, uncertainty is leverage. Enterprise customers can use this leverage to negotiate savings, even if they remain with Dell. 
  3. Negotiate stronger rights to terminate an agreement if Dell is sold. In the very least, customers can ask for a shorter term or lower thresholds for breach due to poor service.
     

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