- Enterprise value put at $17.6 billion
- $9.1 billion LBO package, plus rolled over debt
- Co-investors reduce Silver Lake’s contribution
With an equity contribution of $5.5 billion, a covenant-lite debt package totaling $9.1 billion, and another $4.1 billion of debt rolled over from its pre-LBO structure, the total capital comes to $24.65 billion, according to an analysis of the deal by Buyouts. And in a regulatory filing describing the final contours of the deal, Dell put the “maximum aggregate cash merger consideration” at $20.4 billion of equity and debt, a number that also includes roughly $6 billion of cash on Dell’s balance sheet.
Moody’s Investors Service put the price of the Dell deal at 5.9x EBITDA, while large corporate deals carried a purchase price multiple of 8.4x in the third quarter.
The newly private Dell has an enterprise value of $18.45 billion, according to the Buyouts analysis, backing out the cash on hand from the equity and debt, and allowing for the fact that several of the company’s credit lines are not fully drawn.
Deriving such valuations from the outside of a deal looking in can involve a certain grain of salt.
“It depends on the assumptions you make on how much of the revolving facilities are drawn,” said Stephen Sohn, a vice president at Moody’s in New York and a senior credit officer in the rating agency’s corporate finance group. Our analysis did not include undrawn portions of Dell’s revolvers.
Both Dell, of Round Rock, Texas, and Silver Lake, of Menlo Park, California, declined to comment for this report.
The most senior piece of the deal, a $2 billion, five-year asset-backed revolving credit facility, has been drawn by only $750 million, according to the filing. Next in line are three tranches of senior secured cash flow loans, including a $4.66 billion term loan B priced at Libor plus 350 basis points and a euro-denominated loan priced at Euribor plus 375 bps.
Those term loans rank equally with a $1.5 billion issue of seven-year first-lien notes with a 5.625 percent coupon.
In addition to the new debt that Dell described, the company also has $1.16 billion in existing debt from a pair of deals that continue to be part of the capital structure: Dell’s April 2012 acquisition of Quest Software Inc for $895 million and its July 2010 deal for SonicWall Inc for $260 million. The company also continues to carry $3.25 billion of bridge loans from February, when the deal was first proposed, according to Thomson Reuters data.
The only subordinated debt in the Dell deal is a $2 billion, 10-year, 7.25 percent note to the software company Microsoft Corp, which had agreed to provide the financing to Dell, a computer maker that has struggled as computing technology shifts away from desktops and servers to handheld tablets and smart phones.
Dell had considered adding a tranche of sub debt to its package, sister service Thomson Reuters Loan Pricing Corp reported, but the senior loan market was receptive enough to enable Dell to cancel an expensive $1.25 billion second-lien bond. Bankers described the pricing of 275 bps on the TLC as very tight for such a large loan.
Dell also has $2.5 billion outstanding through three other revolving loans, for retail, commercial and Canadian customers of the company’s captive finance arm.
Michael Dell, the founder, chairman and CEO of the company, contributed more than $4 billion of the equity for the deal and will own, directly or indirectly, a 71 percent voting stake in his eponymous company, according to the filing. Silver Lake and its affiliates will control 24 percent. Silver Lake, which originally committed $1.4 billion to the deal, ended up providing only about $1 billion of equity, while a group of Silver Lake limited partners signed on as co-investors, putting up about $350 million through a vehicle called SLP Denali Co-Invest LP. Denali was the internal name for the take-private; Denali Holding Inc is the ultimate parent of Dell now. Microsoft owns 4 percent of Dell, with certain members of the company’s management holding the rest.
Michael Dell launched his take-private bid in February, arguing that the company would do better outside of public markets as it attempts to transform itself from a producer of low-priced products in a commoditized market to a provider of higher value technology services.
But with all the new debt on its balance sheet, repayment will be a priority for Dell, said Sohn of Moody’s.
“They don’t have much flexibility other than to focus on organic growth.”
The company is likely have to limit its annual M&A spending to $500 million to $1 billion, in contrast to the combined $11.8 billion that it spent on acquisitions in the last four years. But being private will lead to at least some corporate savings, Sohn added: “The private Dell won’t be spending on those share repurchases or dividends.”