Dell close to sale of software division to private equity consortium

Francisco Partners and Elliott Management to snap up Dell's software assets, including SonicWALL

Dell is close to completing the sale of its software division as it looks to reduce debts following the $67bn acquisition of storage vendor EMC - the biggest-ever acquisition in the tech sector. The software sale, though, won't include the controlling stake in virtualisation software company VMware, which came with the company's EMC purchase.

Francisco Partners, a buyout specialist, and the private equity arm of activist hedge fund Elliott Management, is in advanced talks with Dell, according to Reuters.

The news agency, which has enjoyed a good record on forecasting Dell's M&A moves in recent years, said a deal could be concluded before the end of the week at a price of around $2bn.

Dell's software assets include Toad database development and administration tools, ChangeBase application compatibility testing, RemoteScan for managing virtual desktops, KACE endpoint systems management and the SonicWALL firewall range, which is arguably the most high-profile of Dell's software product lines.

The sale of the software assets would free Dell from one of its least profitable divisions, suggests Reuters, as software sales plateau due to a combination of cloud computing and falling PC sales. Ironically, perhaps, its core PC business is probably less profitable, but the now private company is no longer obliged to publish detailed financial information.

Dell is ultimately owned by Denali Holdings, the vehicle set up by founder Michael Dell when he sought to take the company private in 2013. The company required loans of $13.75bn from various banks, as well as a loan of $2bn from Microsoft, when Michael Dell took the company private. The company lined up loans of $49.5bn and sold assets to fund the EMC purchase.

However, selling off the company's VMware stake would help slash the company's indebtedness.

Despite the buyout, Dell continues to decline. In the first quarter to the end of April 2016, revenue fell by two per cent to $12.5bn, resulting in an operating loss of $161m. However, those results indicate that it has positive annual cash flow of around $3bn.