GOING PRIVATE

The repurchasing of all of a company's outstanding stock by employees or a private investor.

As a result of such an initiative, the company stops being publicly traded

Companies might want to go private in order to restructure their businesses (when they feel that the
process might affect their stock prices poorly in the short run)

Sometimes, the company might have to take on

significant debt to finance the change in ownership structure.

LEVERAGED BUYOUTS (LBO)

The acquisition of another company using a significant amount of borrowed

money (bonds or loans) to meet the cost of acquisition.

Collateral - The assets of the company being acquired in addition to the assets
of the acquiring company.

Purpose - to allow companies to make large acquisitions without having to

commit a lot of capital.

Transaction structure:

STEPS IN LBO ANALYSIS

Develop operating assumptions and projections for the standalone company to arrive at EBITDA and cash
flow available for debt repayment over the investment horizon (typically 3 to 7 years).
Determine key leverage levels and capital structure (senior and subordinated debt, mezzanine financing,
etc.) that result in realistic financial coverage and credit statistics

Estimate the multiple at which the sponsor is expected to exit the investment (should generally be similar
to the entry multiple).
Calculate equity returns (IRRs) to the financial sponsor and sensitize the results to a range of leverage and
exit multiples, as well as investment horizons.

Solve for the price that can be paid to meet the above parameters (alternatively, if the price is fixed, solve
for achievable returns).

DELL-THE TIMELINE

WHY THIS CHANGE IN STRUCTURE?

Falling PC market

With the start of 21st century the market started shrinking and was further
badly effected with emergence of tablets, smart phones and other lighter
devices.

FALLING REVENUE AND MARGINS

Revenue of the company fell

by 7% between FY08 and FY13.
Operating Income and net
income decreased by about
12% and 20% respectively.
Net cash flow from operation
fell from US$5.5 billion in FY12
to US$ 3.3 billion in FY 13

SHRINKING MARKET CAPITALIZATION

Other Reasons

Failure in tablet business: The company came up with Streak 5 in 2010

which failed to please consumer and was discontinued in Aug 2011.

Going to cloud: Being public made it hard and risky for Dell to expand in
cloud business. The Dell could easily expand in cloud business without
having to deal with objections from other investors.

Going private would help Dell cut various cost of running a public
company, save it from private investors scrutiny providing it more flexibility
to operate in a low margin PC business.

THE DEAL
Michael Dell partnered with Silver Lake in order to
make Dell private
They offered $13.65 per
share to buy out the
company. They valued
Dell at $24.4 billion out of
which Mr. Dell share was
15.6%.

Mr. Dell invested his 14%

share worth 3.8 billion and
offshore cash. Silver Lake
pitches $ 1 billion and Dell
supplier Microsoft provided
$2 billion. Rest $16.8 billion
raised from other sources.

Carl Icahn and

Southeastern Asset
Management (12.8%)
opposed the deal.
The shareholder approved
the final bid at $24.9 billion.