Dell saga gives Twitter investors reason for reflection

By Paul Mackintosh - 16/09/13
Tech is back in the news again, at both ends of the private investment scale. At the big buyout end, Silver Lake Partners has just sealed its buyout deal with Dell founder Michael Dell to take his creation private in the face of Carl Icahn’s counter-campaign, for US$25 billion. And Twitter has filed for its long-awaited initial public offering (IPO). But you can see very different approaches and perspectives at either end of the spectrum.
Whether or not Mr. Icahn’s counterbid was ever seriously credible, let alone his claims that the Dell/Silver Lake offer undervalued the company, investors obviously bought the argument that this was the best offer likely to materialise. Even so, it was no easy ride. Michael Dell, Silver Lake, their deal partner Microsoft, and their supporting financiers had to skip three prior shareholder meetings, add a ten-cent sweetener to raise the final price to $13.75 per share, and throw in a special dividend and guarantees for further dividend payment immediately after the deal, to lock down enough votes to approve the plan. Never mind the legal challenges and continual barracking from the Icahn camp. 
Yet Twitter is already valued at close to half of Dell’s buyout price, with analysts estimating a $10 billion total valuation. And tech IPOs now look a lot better than they did in the immediate aftermath of the Facebook listing, which came close to discrediting the entire process after the disclosure of selective leakage of price-sensitive information prior to the flotation, and its subsequent share slide. Facebook shares are now well past their $38 IPO price at up to $45, which should more than rekindle investors’ faith in tech floats. The all-star cast of venture capitalists (VCs) positioned to benefit from their positions in Twitter include Andreessen Horowitz, Benchmark Capital, Charles River Ventures, Institutional Venture Partners, Kleiner Perkins Caufield and Byers, and Union Square Ventures.
The Dell saga ought to give some Twitter investors pause at least for reflection, though. Here is a mature tech company at the other end of its development trajectory, turning to private equity for a delisting and a highly- leveraged turnaround, out of the public markets. Dell was founded in 1984: now, less than 30 years later, it needs a buyout giant to rekindle some hope for its business. How long can Twitter expect to last before it needs something similar? Technology life cycles get shorter and more ferocious all the time. 
Not that VC s or buyout general partners need worry. The public markets revolving door will continue to turn, with VCs and private equity investors, advisors and intermediaries set to make money on each spin.