VMware’s $92bn sale showers cash on Michael Dell and Silver Lake

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A private equity deal that stands out for its length and complexity has also turned out to be one of the industry’s most lucrative, reaping $70bn in gains for tech entrepreneur Michael Dell and investment firm Silver Lake.

The two made a big bet more than a decade ago when they took personal computer company Dell Technologies private. Dell Technologies then acquired tech conglomerate EMC for $67bn in 2016. EMC’s premier asset was its 81 per cent stake in VMware, a cloud computing specialist which last week was sold to Broadcom for $92bn.

The sale delivered more than $14bn in cash to Silver Lake and Michael Dell, crystallising part of the duo’s $70bn in combined gains, according to Financial Times calculations.

“It is an example where Silver Lake and Dell made a contrarian bet,” said Steven Kaplan, a private equity expert who teaches at the University of Chicago’s Booth School of Business. “Nobody thought Dell was worth a whole lot . . . they did some clever financial engineering and created a lot of value.”

Silver Lake, with $101bn in assets under management, is a US private equity firm known for its tech investments. Michael Dell runs Dell Technologies, which he founded in 1984 and today has more than $100bn in sales.

The gains for Silver Lake are equal to a net multiple on the equity it invested into VMware of 7.3 times for its 2013-era flagship private equity fund, and 3.1 times for a later fund that was raised in 2018, according to communications the firm sent investors last week.

“It’s got to be one of the deals of the decade,” said a large investor in both of the Silver Lake funds, who added that they were “excited about the cash distribution . . . It’s going to be enormous in size”.

The sale of VMware will mark the first time Silver Lake is sending investors a large cash sum back from its deal for Dell Technologies. For its nearly 10 per cent stake in VMware, the Broadcom deal handed Silver Lake just under $3bn in cash and Broadcom stock worth more than $5bn, according to FT calculations. Michael Dell received nearly $12bn in cash.

The cash payouts are only part of far bigger returns reaped by investors. Silver Lake invested a total of $1.8bn into Dell Technologies and VMware for combined stakes that are now worth more than $15bn, according to FT calculations. Michael Dell put more than $6bn in equity into both companies for stakes that are now worth about $60bn.

Chart showing Dell and VMware gains by Silver Lake and Michael Dell

Kaplan said: “This is one of the huge private equity successes. If you count Michael Dell’s investment this would be the biggest.”

Silver Lake and Michael Dell declined to comment.

The Dell buyout and the EMC takeover were hotly contested on Wall Street, drawing criticism from activist investors such as Carl Icahn. Last year, Dell Technologies agreed to pay a record $1bn to settle a shareholder lawsuit that alleged Michael Dell and Silver Lake had short-changed public stockholders in the transaction a decade ago.

The dealmaking push also involved a myriad of complex financial engineering techniques.

When VMware was spun off from Dell Technologies in 2021, it then paid its former parent company a special dividend of more than $9bn that was used to repay the large debts Dell and Silver Lake had accumulated to fund their acquisitions. The split also left Michael Dell owning 40 per cent of VMware, while Silver Lake owned 9.8 per cent.

But, amid all of these financial gymnastics, Silver Lake and Michael Dell did not extract cash from the deal.

That left institutional investors in Silver Lake’s funds, such as large pension funds in California, Washington state and New York, sitting on an investment that had grown by billions in value over the past decade but without any cash distributions.

Broadcom closed its takeover of VMware last Wednesday after a 18-month review in which the acquisition risked collapsing because of scrutiny from China’s competition authorities. During that time the terms — half in cash and half in stock — became more valuable as Broadcom shares nearly doubled.

When Silver Lake alerted investors to their cash distribution last week, it said the sale of VMware was a “defining moment” for the tech investor, and called the investment the largest-ever gain in the private equity industry, 2.5 times greater in dollar terms than the second-largest.

Kaplan said the industry’s largest gain was on Blackstone’s buyout of hotel group Hilton Worldwide, which yielded more than $11bn in gains.

“[Along] the journey there were pivotal moments of creative structuring,” Silver Lake told its investors, while calling its ability to hold large investments for long periods of time as they are built up in size as a “competitive advantage”.

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