Dell's acquisition of EMC

The deal in one paragraph

Dell announced its acquisition of EMC on October 12, 2015, and closed it on September 7, 2016, for a total transaction value of approximately $67 billion, the largest technology acquisition ever completed at the time.

EMC shareholders received $24.05 per share in cash plus 0.111 shares of a brand new security, Class V tracking stock, trading under the ticker DVMT, whose value was tied to Dell's economic interest in VMware, the cloud and virtualization software company EMC majority owned.

The deal is a favorite interview topic for one reason above all others: Dell had taken itself private in 2013 to escape the demands of public shareholders, and it financed the biggest tech deal in history without ever going back to public equity markets to do it.

Why Dell wanted EMC

By the mid-2010s, Dell's core PC business was structurally challenged: personal computer sales were flat to declining industry-wide, margins were thin, and the business Dell had built its name on was no longer where the growth was.

EMC, by contrast, was a leader in enterprise data storage, and it controlled roughly 80 percent of VMware, one of the most important software companies in enterprise computing, the company that had essentially created the modern virtualization market that cloud computing depends on.

Buying EMC gave Dell immediate scale in enterprise storage, servers, and security, and it gave Dell a controlling stake in VMware's software business and its far higher margins, without Dell having to build any of that from scratch.

It transformed Dell from a hardware company selling boxes into a broader enterprise technology company with a real software and infrastructure story, which is exactly the pivot public investors had been demanding before Dell went private.

Structure and terms

The consideration mixed cash and a new class of security most candidates have never encountered before this deal comes up:

A tracking stock is a class of equity issued by a parent company whose value is meant to reflect the performance of a specific subsidiary or business unit, rather than the value of the whole parent. Holders of Class V stock did not own VMware directly and did not own a slice of all of Dell.

They owned a security designed to move with Dell's economic interest in VMware, while VMware itself kept trading as its own separately listed public company the entire time, majority owned by Dell but with its own public minority shareholders and its own stock price.

Dell used the tracking stock for a specific reason: straight cash would have required borrowing even more than the roughly $49.5 billion it already committed, and straight equity was awkward because Dell itself was private, so there was no ordinary Dell common stock to hand EMC shareholders.

A tracking stock let Dell give EMC's shareholders a security that was liquid, tradeable, and connected to a real, valuable, separately listed asset (VMware), without diluting Dell's actual private ownership or requiring Dell to take on debt it could not service.

It was, in effect, a way to pay part of the purchase price with paper backed by an asset everyone could already see priced on a public exchange, VMware's own stock.

Financing a mega-deal as a private company

This is the part of the story that separates Dell-EMC from an ordinary big acquisition. Public companies routinely fund large deals with a mix of cash, stock, and debt, drawing on public equity markets when they need to.

Dell, in October 2015, had no public stock to offer at all: it had gone private in a 2013 leveraged buyout led by Michael Dell and Silver Lake Partners specifically to get away from quarterly earnings pressure and short-term investor demands. Two years later it was signing up to the largest technology acquisition in history.

The financing had to come from three places at once. First, roughly $49.5 billion in committed debt, arranged by a syndicate that included Barclays, BofA Merrill Lynch, Citi, Credit Suisse, Deutsche Bank, Goldman Sachs, J.P. Morgan, and RBC Capital Markets, with Credit Suisse and J.P. Morgan acting as global financing coordinators.

Second, new common equity contributed by Michael Dell personally, MSD Partners (Michael Dell's investment firm), Silver Lake, and Temasek, Singapore's state investment company, which effectively meant a second round of sponsor capital on top of the 2013 buyout. Third, the tracking stock itself, which let part of the purchase price be paid in a security rather than cash Dell had to raise.

Silver Lake's role went beyond writing an equity check. As a repeat partner from the 2013 take-private, Silver Lake helped structure a deal that let Dell keep control concentrated with Michael Dell while still bringing in the capital a $67 billion transaction required. That combination, heavy debt, sponsor equity, and a novel tracking-stock instrument, is what let a private company complete a deal of this size without a public offering.

How it played out

The deal closed on September 7, 2016, and Dell absorbed EMC's storage, server, and security businesses while VMware continued operating and trading independently. The debt load was substantial and shaped Dell's strategy for years afterward: paying it down became a priority, and it left Dell with less flexibility than a less leveraged competitor might have had. The tracking stock, meanwhile, became its own saga.

DVMT traded at a persistent discount to the value of the VMware shares it was meant to track, frustrating holders including activist investor Carl Icahn, who argued the structure undervalued their stake.

In 2018, Dell moved to eliminate the tracking stock entirely and return to public markets: on December 28, 2018, Dell completed a transaction converting Class V shares into a mix of cash and new Dell Class C common stock, worth $120 per Class V share in the deal as finalized, with Dell paying roughly $14 billion in cash and issuing new shares for the balance.

Shareholders approved the transaction with 61 percent in favor, and Dell began trading again on the New York Stock Exchange the same day, five years after it had gone private.

If it comes up in your interview

A 60 to 90 second answer: "Dell bought EMC in 2016 for about $67 billion, the biggest tech deal ever at the time. EMC shareholders got $24.05 in cash per share plus a new tracking stock called Class V, ticker DVMT, tied to Dell's stake in VMware, which EMC majority owned but which kept trading separately.

The interesting part is that Dell was private at the time, it had gone private in 2013 with Silver Lake, so it had no public stock to offer. It financed the deal with about $49.5 billion of debt plus new equity from Michael Dell, Silver Lake, MSD Partners, and Temasek, and used the tracking stock to hand EMC shareholders something liquid without diluting Dell's private ownership.

In 2018, Dell bought back the tracking stock for cash and new Dell shares and relisted on the NYSE, which is how the company actually became public again."

Likely follow-ups:

What exactly is a tracking stock, and why not just use debt or Dell's own equity? A tracking stock is a security whose value is designed to follow a specific business or subsidiary rather than the whole parent company. Dell used one because it had no ordinary public stock to offer as a private company, and adding still more debt on top of $49.5 billion would have strained the combined company's ability to service it.

Why did the tracking stock trade at a discount to VMware's own shares? Investors worried the tracking stock did not give them a clean legal claim on VMware itself, only an economic reference to it, and that Dell, as the controlling shareholder of both Dell and VMware, could make decisions that favored Dell's interests over Class V holders. That governance uncertainty is a common reason tracking stocks trade at a discount to the asset they reference.

Why did Dell eventually buy back the tracking stock? The persistent discount and pressure from holders like Carl Icahn made the structure unpopular, and unwinding it let Dell simplify its capital structure into ordinary common stock while achieving what amounted to a public listing again, without running a traditional IPO process.

How risky was taking on nearly $50 billion of debt for this deal? Very significant leverage for a company Dell's size, and it constrained Dell's flexibility for years, but it was manageable because EMC and VMware together generated substantial, relatively stable cash flow, and Dell prioritized deleveraging in the years immediately after closing.

What this deal teaches

Dell-EMC is the reference deal for creative consideration structures: when cash and straight equity are not attractive or available, acquirers can construct new securities like tracking stock to bridge the gap, provided there is a real, valuable, separable asset like VMware to tie it to.

It also teaches candidates that "who is the buyer" matters as much as "what are they buying": a private company financing a mega-deal has to solve a problem public acquirers do not, since it cannot simply issue its own stock to the target's shareholders.

Expect tracking stocks and creative consideration structures to come up any time an interviewer asks how you would pay for a deal when neither cash nor plain stock is a clean answer, and expect this deal specifically to come up as the example of both the upside of that creativity and its costs, since the very structure Dell used to get the deal done became something it had to unwind three years later.