Another Shopping List For Dell

The time has come for Dell (DELL) to do a “transformational” acquisition, UBS analyst Maynard Um asserts in a research note this morning. He thinks the company needs to reduce its focus on commoditized hardware and make a move into higher margin services and software.

This is not a new idea: back in December, Avian Securities analyst Avi Cohen weighed in with some acquisition ideas; his list included Sun Microsystems (JAVA), which of course has agreed to be acquired by Oracle (ORCL), and Data Domain (DDUP), now the subject of a tug-of-war between EMC (EMC) and NetApp (NTAP). Names from his list that haven’t yet been swallowed include CommVault (CVLT), Compellent (CML) and 3Par (PAR). Others have made alternative suggestions. Bernstein has proposed the company buy Acer, for instance. And of course, there have been rumors that they might buy Palm (PALM)

Um notes a series of signals that M&A is receiving new scrutiny at Dell:

• April 2009: Sells $500 million of 5-year notes, with proceeds targets for potential acquisitions, among other things.


• May 2009: Hires IBM M&A chief David Johnson.


• May 28, 2009: Says on earnings call that “asset prices are gettign pretty attractive.”


• June 10, 2009: WSJ piece quotes Michael Dell saying it expects to make a significant acquisition in the coming months.


• June 11, 2009: Sells $1 billion of debt, boosting cash to $11 billion-plus.


• June 16, 2009: Busienss Week piece says division heads asked to look for acquisition candidiates.

Um goes on to review a list of potential candidates, shooting many of them down:

• Computer Sciences (CSC): Services provider could be good fit, but $8.7 billion enterprise value is pushing the limits of what Dell might be willing to do in terms of size.


• Affiliated Computer Services (ACS): Like, Dell, based in Texas. He thinks the services player could be a good fit, but again with $6.3 billion EV, size could be an issue.


• Perot Systems (PER): Another services play, and another company based in Texas. About 50% focused in health-care sector. Ross Perot owns almost 25% stake; would likely want a big premium.


• Unisys (UIS): Ewww. Another possible services deal. Um suggests finding a company with “a better mix of higher valued added services.”


• Citrix (CTXS): Applications virtualization company has close ties to Microsoft (MSFT), which could make an acquisition by a particular hardware vendor problematic. Also big, with $6 billion-plus market cap.


• McAfee (MFE): Large consumer focus - 40% of revenue - makes deal less likely. Um says Dell better off focusing on service than security.


• Salesforce.com (CRM): Web-based SAAS focus not compatible with Dell’s hardware focus.


• Acer: Buying Acer would add scale; but he thinks Acer’s management wouldn’t be interested, and that there would be cultural fit issues. Also, he thinks they should be diversifying away from PCs.


• Palm: Um says checks find Dell is developing a smart phone. But he thinks the company would be better off focusing on enterprise business. Also says a deal would likely NOT be accretive, and would not provide new channels for Dell hardware.


• CommVault: He seems to like this idea. It is modest in size - market cap $669 million - and the two are already closely tied, with Dell as a reseller already accounting for 23% of the company’s ‘09 sales.


• 3Par: Another storage play. Storage spending likely to fare better than PCs and servers. In size, comparable to CommVault.

Got any other ideas? Let’s hear them.