Microsoft's a player in Dell private equity play: Here's why

Why would Microsoft invest a few billion of dollars into Dell's buyout? Here are a few reasons why locking up a partner may make sense.

Microsoft is reportedly in talks to help finance a buyout of Dell in a move that would take the PC maker private.

According to the Wall Street Journal and CNBC, Microsoft would invest a "couple of billion dollars" or $1 billion to $3 billion in Dell. Microsoft wouldn't comment on the reports. Dell's buyout would be led by Silver Lake Partners. 



Dell's move to go private would make a lot of sense. It has to change its model from one centered around PCs to one focused on software and services. Such a transition is best conducted in private without quarterly scrutiny from Wall Street.

More:  Dell hires Evercore to find higher bids over buyout plans  |  Dell going private, a good thing for all  |  Dell buyout pegged at $13-14 a share: reports

The reports on the Microsoft financing noted that it's unclear what the software giant would want with Dell. Given that void, let's connect a few dots. Here are a few reasons why Microsoft may throw a few billion dollars at Dell.

  1. Microsoft could get access to manufacturing assets. Microsoft is a hardware maker, but comes from a software background. Dell clearly has the hardware manufacturing gig down and could be a nice contract partner for Microsoft.
  2. The software maker keeps a key partner in the Windows fold. Dell has been a key PC maker for years and most of those devices were powered by Windows. If Dell went private perhaps its loyalty to Microsoft wanes.
  3. Maybe there's a smartphone play. Dell hasn't been a mobility juggernaut by any stretch. If Microsoft is an investor any mobile device would likely be powered by Windows Phone 8.
  4. Dell is a big enterprise partner. For all the talk about Microsoft's Windows 8 issues, the company's enterprise business is humming. Dell's acquisition strategy has been completely focused on the enterprise. There has to be some partnership potential there somewhere.
  5. Microsoft just has too much cash. The company has lost billions with Bing, search and its Google chase. Microsoft's acquisition history is so-so at best. It's possible that Microsoft will invest because it simply has pockets with giant holes in them.
  6. Dell may be a good investment. Silver Lake Partners has a good track record and Dell will eventually return to the public markets. It's possible Microsoft is just making a good trade. After throwing billions at acquisitions that didn't quite work---aQuantive anyone?---Microsoft has to get a win sometime.