Dell announced on Monday that it would buy IT giant EMC in the biggest ever technology deal.
The $US65.7 billion deal will create one of the largest private companies in the world.
Although talks between the two companies stepped up in the past five months, the deal can trace its origins to Dell’s buyout two years ago.
Jamie Dimon, the chief executive of JPMorgan, played a role, along with tech investor Silver Lake, sovereign wealth fund Temasek, and Michael Dell himself.
And, like with many company sales these days, there was an activist investor in the background.
Ratcheting up pressure
The record-setting deal can be traced back to 2013 when Michael Dell and private equity firm Silver Lake took Dell private for $US24 billion.
That’s when founder Michael Dell was able to start transforming his company from a PC-only company to a broader tech firm, without the pressure of meeting quarterly goals.
At EMC, in contrast, the pressure was ratcheting up.
Activist investment firm Elliot Management bought into EMC in July 2014 and started pushing the company to boost its stock price.
That led EMC to begin searching for alternatives like a partnership, and in time those discussions turned to possible business combinations.
The timing for Dell and EMC was “perfect”, according to one person familiar with the deal.
Dell was in better shape financially following its buyout and Michael Dell was looking for his next step, right when EMC was looking at making a change.
In the spring of this year JPMorgan got involved as an adviser to Dell, according to people familiar with the matter.
JPMorgan CEO Jamie Dimon met with both Michael Dell and Silver Lake managing director Egon Durban, and the Dell board started looking seriously at a deal.
How to finance the biggest tech deal in history
The biggest challenge to getting a deal agreed was the huge financing package required to make the deal happen.
The deal will be funded by Michael Dell, his investment vehicle MSD Partners, the private equity firm Silver Lake, and the Singaporean sovereign wealth fund Temasek.
Oh, and somewhere between $US40 and $US50 billion in debt.
JPMorgan, which is the lead financial adviser to Dell, spent much of the summer assuring people that it was doable.
Advising EMC on the transaction was Morgan Stanley.
In early September, Dimon met with EMC’s board to ensure directors that the financing was in fact achievable.
Then, in the six weeks that followed, a handful of other banks came on board and committed financing. Credit Suisse stepped up, a fact reflected by their role as global financing coordinators along with JPMorgan.
A long list of banks also committed to the financing, including Barclays, Bank of America Merrill Lynch, Citigroup, Deutsche Bank, Goldman Sachs, and RBC.
It amounts to one of the largest financing commitments for a technology transaction in history. The deal is big news for Wall Street: it could mean up to $US700 million in fees for the investment banks involved in the deal – and for the tech industry.
The deal is expected to close between May and October 2016.
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