FORTUNE — Dell Inc. (DELL) stock is spiking today on a Bloomberg report that the company is in talks with two private equity firms about being acquired. My gut take is that this would be very, very difficult.
Dell opened trading today with a market cap just shy of $19 billion, and now is well north of $21 billion. So the buyout likely would have to be for at least $23 billion.
Then let’s be ridiculously generous and assume that the private equity firms only have to put together a 35% equity commitment. That’s an $8 billion equity check, or just under $5 billion after Michael Dell rolls over most of his 273 million shares. Way too big a number for one or two private equity firms to do alone, given that the top fund sizes now are only around $10 billion (and firms are loathe — and often contractually prohibited — from committing more than 10% of a fund into any one company). So you’d probably need a minimum of three firms participating, alongside large co-investments from their limited partners. And that would be three firms out of a universe of less than a dozen.
Sounds reasonable in 2007, but not in 2013. Many of those big club deals were losers, and almost all of the participating firms currently are defendants in a related price-fixing lawsuit. The firms all strongly deny any wrongdoing, but that doesn’t mean they want to draw new attention to themselves by teaming up on the largest leveraged buyout in years. Moreover, the number of firms with $10 billion-ish funds has declined over the past few years.
But let’s assume the equity can be somehow worked out. Perhaps Michael Dell has some large sovereign wealth fund on the line. Now you need to find around $15 billion of leveraged financing. The debt markets are deep, but this ask is a few leagues below that. Even during the so-called “Golden Era” of private equity, $15 billion+ in leveraged financing was an extreme rarity. And bankers aren’t being asked to bet on shale gas here; they’re being asked to commit billions to the personal computer market. There’s a reason this thing trades pretty cheap.
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Yes, it is true that Dell has a crazy amount of cash on its balance sheet ($11 billion or so at last count), which should help alleviate some banker fears. But, at the same time, it also has more than $4 billion in existing long-term debt that would need to be refinanced.
“I think it’s stretching the bounds of reality,” one tech-focused private equity exec explained to me after the Bloomberg report came out. “It’s possible, but I wouldn’t hold my breath.”
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