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Dell Moves Closer to EMC Acquisition with Software Sale

by Tim Green | Dun & Bradstreet Editor

June 23, 2016 | No Comments »

Four years ago Dell Inc. bought two companies to bulk up its software offerings to make it more of an end-to-end hardware, software, and services company.

The companies, Quest Software and SonicWall, were to form the core of enterprise software portfolio that provided, among other things, virtualization and security. The total cost: $3 billion.

In 2015, two years after it became a private company, Dell got a bigger idea: Buy EMC Corp., the computer storage company that also has VMware (virtualization software) and RSA (security software) under its banner. The cost: $57 billion.

Dell got some of its money back this week when it sold Quest and SonicWall and other software offerings that made up Dell Software Group to private-equity firms Francisco Partners and Evergreen Coast Capital, an affiliate of Elliott Management, a hedge  fund. The reported price: $2 billion.

With the sale, Dell gets money it could use to trim the debt it’s taking on to buy EMC and divest overlapping products and services. It’s something of a clearing-the-decks move as the consummation of the EMC deal gets closer. EMC shareholders vote on July 19 on the deal.

The software group is the third piece of its business it has divested in anticipation of the EMC deal. Previously, Dell sold its information technology services group to NTT Data for $3 billion and spun off SecureWorks with a public stock offering that garnered some $112 million.

Dell Software Group contributed an average of about $1.4 billion to Dell’s annual revenue from 2013-16 (ended February). But the group’s losses have shrunk from $248 million in 2014 to a $1 million loss for 2016.

The software group’s products and services include advanced analytics, database management, data protection, endpoint systems management, identity and access management, Microsoft platform management, network security, and performance monitoring.

The business has about 188,000 customers, who, the buyers pledged, will not be affected as ownership changes. A Francisco Partners representative highlighted network security and identity and access management as key areas for continued development.

Being a partner involved in running a software acquisition will be a new role for Elliott Management and Evergreen Coast Capital.

As an activist investment firm seeking higher stock prices, Elliott has pushed several software companies to sell to other firms or go private. Those companies include BMC, Tibco, and Compuware. It also played a role in prodding EMC to sell itself to Dell.

With the purchase of Dell Software Group, Elliott’s Evergreen Coast Capital will be involved in attempting to make it more valuable for a sale down the road. An indication of success? A sale price of more than $2 billion.

Tim Green has covered business, technology and science at newspapers and in higher education. At Hoover’s he covers computers and telecommunications. Follow him on Twitter.

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Photo by Wikimedia Commons user Eustress, used here under a Creative Commons license.

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