Business

Michael Dell is known for his computer company, but his investment empire is building him an even bigger profile

Entrepreneur Michael Dell recently said: “I don’t know why people aren’t more curious, and why curiosity isn’t considered a more important leadership trait.”

It certainly hasn’t done Dell any harm.  In his teens, he took apart personal computers as soon as he bought them because he was keen to see how they worked. He found components to make bespoke PCs run better and sold them directly to customers to avoid retail price markups.   

Change, true transformation, is a race with no finish line

Over the years, curiosity took Dell from PCs to software. His company, Dell Technologies went on to embrace the cloud and moved into software-as-a-service, edge computing for the internet of things and AI applications. It now has tech partnerships with companies like Munich Re, Vodafone and the Miami Dolphins to help them achieve growth.

Curiosity has taken Michael Dell into new sectors through his family office, MSD Capital and its adviser MSD Partners, which is steadily boosting its co-investment profile.

Together they manage a total of $22 billion. Dell Technologies has a market value of $40 billion. Michael Dell is worth $56 billion, according to Forbes. He added $1 billion to his family foundation in 2017. 

And Michael Dell’s brother, Adam, a former Goldman Sachs partner, is moving from crypto to the metaverse with Domain Money, backed by Marc Benioff and Joe Lonsdale. He reckons the financial utility of blockchain is “undeniable.”

In his new book, Play Nice But Win Michael Dell says: “Change, true transformation, is a race with no finish line.” 

Technology has become the way companies can turn data into action. Everywhere. Dell says: “We’ll look back on this period, for all its difficulties, as a time of massive acceleration of processes and transformation.” 

These days, Michael Dell often delegates decisions to senior staff. But he sets the agenda and remains chairman and chief executive of Dell Technologies

He co-founded MSD Capital with investment chief John Phelan, previously a principal at investment firm ESL Partners.  In early 2021, they hired Gregg Lemkau as chief executive from Goldman Sachs, where he drove deals worth $1 trillion and served as co-head of investment banking. Lemkau is one of the top investment bankers of his generation. His clients have included Elon Musk (Tesla), Jack Dorsey (Twitter) and Dara Khosrowshahi (Uber).

The MSD Partners team under Lemkau has been involved in a growing number of deals by forging strong alliances with corporate managements, finding co-investment partners and using its clout to fund late-stage funding rounds.

MSD Partners recently co-led a $935 million funding round for Flexport, a platform for global logistics, with Andreessen Horowitz. Other investors included DST Global, Founders Fund and Kevin Kwok, founder of Greylock Partners. MSD’s Lamkau has expressed public support for Flexport chief executive Ryan Peterson.

This year, MSD Partners also invested in East West Manufacturing, alongside its management, with a view to using tech to improve its supply chain and manufacturing capabilities.

It also co-led a $200 million fundraising for 6sense with Blue Owl associated with Owl Rock, a former MSD co-investing deal with George Soros. 6sense coordinates data to help clients achieve revenue-generating efficiencies, most recently through AI-driven email marketing. 

MSD Partners has just bought a $50 million stake in exercise bike company Peloton from founder John Foley. Lemkau made it clear he backed a new management team, led by Barry McCarthy, former finance director at Spotify. Peloton’s mooted takeover by Nike now looks less likely.

Elsewhere, MSD Partners has directly driven 21 private equity deals, worth $4 billion, through MSD Private Capital. As well as deals at Dell Technologies they include Ultimate Fighting Championship, a martial arts promoter; Prophet Capital, a residential mortgage specialist; Hayward Industries, maker of pool equipment, Endries International, a distributor of fasteners, and Ring Container, which makes plastic bottles. 

MSD Partners has also put together credit deals, led by Rob Platek, in a range of sectors. It raised a $1.1 billion credit opportunities fund in 2020. It has issued real estate loans and loaned money to soccer clubs in the UK that pay generous interest rates but are rarely allowed to go bust. 

MSD’s direct real estate deals are worth $8 billion, and often involve co-investment. They include the Naples Beach and Boca Raton clubs in Florida; the Fairmont Miramar in Santa Monica; 13,000 multi-family units and hotels in Hawaii; the Fairmont Miramar in Santa Monica and an office development leased by Google, set to be the tallest office tower in Austin, near Dell Technologies headquarters at Round Rock.

Michael Dell saw the opportunity in private assets after reaping a massive windfall from the rescue of IndyMac Bank, now One West during the credit crisis. 

He became directly involved in private assets in 2013 after deciding that stock pickers could not see the potential in his listed company and would not back his plans for expansion in software. He geared up and took it private with backing from private equity firm Silver Lake, taking it back to the market, after a string of acquisitions, five years later. 

Michael Dell also noted that active managers retained by MSD Capital had been lagging the S&P 500 for many years. In contrast, in 2017, MSD Capital quadrupled its money on the sale of a private portfolio of TV station airwaves. 

When consultant Bain & Co recommended a switch from public assets to private at MSD Capital, Dell agreed to make the shift. He retained some active strategies but switched some of their assets to passive funds, including ETFs. 

According to MSD Capital’s mission statement: “We are motivated by an intense curiosity to grasp the underlying truths that govern financial markets and economic behavior. These truths may be contrary to the consensus view, but we believe our discipline as independent thinkers will allow us to identify these truths and secure long-term success.”

According to Crunchbase, MSD Capital has funded 43 deals, and exited from 14 of which the vast majority involve tech, and its applications.

Its only VC deal in 2022 was backing for a $1.5 billion fundraising at Michael Rubin’s Fanatics, a sports merchandise company seeking to expand into trading cards and sports betting. MSD invested alongside BlackRock and Fidelity.

Following its IPO in 2021, MSD has taken profits on Finch Therapeutics which develops treatments for gut ailments. Its exposure to synthetic biology applications is relatively low, although it has just backed Cue, a diagnostic company, and Oura, makers of a device that measures sleep and exercise.

A year ago MSD launched a SPAC called Orion Biotech Opportunities with life science specialist Panacea Ventures. But a deal has yet to emerge.

Around the same time, the MSD team raised $575 million for another SPAC, MSD Acquisition which has been competing with Churchill Company on a reverse takeover of Indian education company Byju’s.

MSD recently took profits on Cloudera, an expert in handling cloud and edge data.  Fundings for trading platforms and related applications included Airtable, Dataminr and Pipe during 2021. 

The same year, MSD Capital invested in a $350 million fundraising by IonQ, a quantum computing developer, alongside its long-standing funding partner Silver Lake. 

IonQ has now gone public via a SPAC deal and developed a commercial funding platform with Dell Technologies showing that one tech deal can lead to another. 

Dell Technologies stock is currently 10% off its record high.  Unlike growth stocks it can claim a massive client base and range of systems which means it can prey on weakness.

Revenues in the year to December jumped 17% to a record $101 billion and Dell’s debt has regained investment-grade status, following corporate disposals, after skidding to junk after the 2013 buyout.  No bad thing as the global economy lurches towards a recession not seen since the dark days of the 1970s.  

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