-- This article was written by Chris Nolter of The Deal
As Dell maneuvers to finance its massive buyout of EMC (EMC), the tech group announced the anticipated sale of its Dell Services unit to NTT Data for $3.05 billion.
Every billion counts as Dell and Silver Lake Partners look to wrap up their $67 billion acquisition of EMC, the largest tech buyout ever. Dell has filed for a spinoff of its SecureWorks cybersecurity unit, and has reportedly also considered sales of SonicWALL and Quest Software.
Dell launched the auction for its IT services unit about four months ago and mainly reached out to strategics, according to a source familiar with the situation who spoke on condition of anonymity. Three rounds of bidding ensued, the source said. After competitive bidding, the field included NTT, Atos SE, Tata Consultancy Services Ltd. and Cognizant Technology Solutions (CTSH), the source added, confirming a December report from Reuters.
The $3.05 billion purchase price equates to about a mid- to high-single digit Ebitda, the source said, while cautioning that pinpointing an exact Ebitda is a bit more complicated to do for carve-outs.
IT services provider NTT Data is part of Japan's NTT Group. The buyer said acquiring Dell Systems would improve its outsourcing business in the health care and insurance industries. NTT Data said Dell Services' data centers in the U.S., U.K. and Australia would dovetail with its 230 data centers in international markets.
Dell plans to raise about $50 billion in debt for the EMC purchase.
When Michael Dell and Silver Lake took Dell private in 2013, they devoted cash flow to paying down debt, Moody's Investors Service analyst Stephen Sohn said in an email. The analyst expects a similar pattern to play out following the EMC deal.
"We expect the proceeds from the sale of non-core assets to be a big part of the deleveraging story for Dell once they acquire EMC," Sohn said in an email, suggesting that divestitures would close around the time of the EMC transaction. "Asset divestitures are a key cog for repaying debt," he added.
Round Rock, Texas-based Dell acquired the former Perot Systems for $3.9 billion in 2009. The company reportedly sought more than $5 billion for the business.
The Federal Trade Commission, the European Union and other regulatory bodies have cleared Dell's acquisition of EMC. The companies await a vote by EMC shareholders and reviews by other countries. Dell expects to close the deal in its fiscal third quarter, which runs from August to October.
NTT Data retained Wells Fargo Securities LLC, JPMorgan Securities LLC and Credit Suisse Securities (USA) LLC for financial advice. Dell retained Citigroup.
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