It was 2015 when Tom Sweet, CFO of Dell Inc., took what turned out to be a momentous telephone call. The caller was his boss, Michael Dell, founder of the eponymous computer technology giant. The Texan-born entrepreneur was ringing with news of an exciting deal that he had in the pipeline. He wanted to buy enterprise storage business EMC, pulling off the world’s largest ever technology merger in the process.
“I was excited about the strategic opportunity,” Sweet recalls, “but then my excitement quickly morphed into a focus on how we would financially structure the deal to get it done.” While Michael Dell himself owned around 72% of the business, Dell Inc. had a private equity partner, Silver Lake, that owned another 24% and had expertise in financial structuring. This expertise proved crucial in enabling Dell Inc. to finance a highly leveraged merger that was eventually completed in September 2016.
Just how big was that merger? Dell Inc. borrowed US$67b to buy EMC and absorb its businesses into a new company known as Dell Technologies.
“I wasn’t doing handstands,” says Sweet when asked how he felt about the company taking on that much debt. “But it was what we had to do to get this deal done. Our focus was on making sure the debt load was manageable and could be serviced in a variety of economic conditions. There was a lot of planning to ensure that we could handle the debt properly under any scenario. We also considered how quickly we could bring the debt load down to get the company back to investment-grade metrics.”
As it happens, Dell Technologies has already paid down nearly US$15b of debt since the merger through a combination of revenue growth and selling off non-core businesses. While Sweet always believed in the potential of the deal, the speed at which the company has been able to pay down the debt has surprised him.