Photograph by Wesley Mann

The Gamblers Behind Tech’s Biggest Deal Ever

How a computer mogul and a private-equity rising star paved the way for the Dell-EMC merger.

Everything’s bigger in Texas—even the deals. Just ask Michael Dell, founder and CEO of his namesake company, once the largest PC maker in the country. In 2013, along with private equity firm Silver Lake Partners, he took Dell private, a transaction worth $24.4 billion—the largest leveraged buyout since the Great Recession. The sequel, two years later, was even grander: Dell helped orchestrate a $67 billion merger with EMC, a leader in data storage, in the biggest tech deal in history. That transaction closed in September, and the combined Dell-EMC, now dubbed Dell Technologies, is—for now—the world’s No. 1 seller of storage systems, No. 2 of servers, and No. 3 of PCs, according to research firm IDC. And thanks to Dell’s financial engineering, it has a Texas-size pile of debt stuffed into its saddlebags.

Not that the founder is floundering. The bigger the gamble, the better, in Dell’s view—and this isn’t his first rodeo. This is a guy who revolutionized the computer industry by selling PCs directly to consumers, then spent billions on acquisitions to give Dell a post-PC future. “I have never been afraid to take a different approach to things that other people thought made no sense at all,” Dell says in an interview during a conference in Austin, 20 miles from the tech giant’s headquarters.

In a light-blue button-down and dark slacks (no tie), 51-year-old Dell is barely beginning to show his age; the touch of gray in his curly helmet of hair is quarantined—at least for the moment—to a patch just above his ears. You have to hope he feels as youthful as he looks: He will need all the energy he can muster. His corporate maneuvering over the past decade has been guided by his belief that Dell can dominate as a one-stop tech shop for corporations facing profound technological change. As Dell describes it, especially in the face of fast disruption, customers want simplicity.

Now he’s going to learn whether his bet was the right one. His new company, which carries nearly $57 billion in debt, will be searching for growth in industries largely in decline. (Overall sales of PCs, servers, and storage systems were down year over year in the most recent quarter, and Dell’s revenue in 2015, pre-merger, was $58.1 billion, 6% lower than in 2012.) Integrating the companies, with a combined workforce of 140,000, will also be an exercise in moving mountains.

Customers’ needs, meanwhile, are rapidly evolving. Servers, which run operations for multiple smaller devices like PCs and phones, along with storage systems for companies’ data, are Dell Technologies’ new bread and butter. But they face an enormous threat from the public cloud, which allows companies to off-load computing and storage to “rentable” data centers instead of building their own. The breakneck growth of the cloud could rattle Dell’s financial foundations—even as Dell provides cloud powerhouses like Amazon Web Services amzn and Microsoft msft with some of their equipment.

Dell, the CEO, hopes his bulked-up company will become a dominant player in selling to these providers. He also hopes a bigger product line—and “hyper-converged” systems that combine these building blocks and more into one souped-up offering—will appeal to customers who still build their own data centers. But allies and competitors alike see an uphill climb. “I don’t think the data center market has ever experienced the kind of disruption it is seeing today,” says Scott Dietzen, CEO of Pure Storage, a maker of data-center memory products. The pace of that disruption is unprecedented, as another Dell rival points out. “I believe the future belongs to the fast,” Meg Whitman, CEO of Hewlett Packard Enterprise hpe , tells Fortune. “The winners are going to be the companies that are nimble, fast, and focused.”

Michael Dell is gambling that big, broad and experienced will be the better trifecta. As Fortune reports here for the first time, Dell’s deals reflect a decade or more of meticulous planning, as well as some vital, long-lasting relationships—formed with a serendipitous boost from a Hawaiian vacation community. With an estimated net worth of more than $20 billion, Dell has made his fortune and then some. But his latest gamble could return him to the top, securing his legacy at the company whose products bear his name. As he told a crowd of employees and customers in 2015, just after explaining the merits of the EMC deal, “Go big or go home, baby.”

All the planning in the world is no good without a little chutzpah, and Dell showed plenty of that before he was old enough to order a beer.

Originally from Houston, Dell had a love for technology from early on. In the fall of 1983, as a University of Texas at Austin pre-med freshman, he started tinkering with hard drives in his dorm room. Dell soon transitioned to building PCs, buying pieces wholesale and assembling them to sell at a fraction of the cost of the pricey IBM ibm products that dominated the market.

His parents wanted him to surround himself with books, not motherboards. When they came to visit, Dell says, he hid the damning parts in his roommate’s bathtub. Mom and Dad caught on and insisted he quit the computer biz and focus on school. “I went cold turkey for, like, 10 days,” recalls Dell. “And it was during that time that I concluded that this wasn’t just a hobby.” By the end of the school year, Dell had dropped out and started his company. He never went back to graduate. (“I’m still living with the Jewish guilt for not being a doctor,” he jokes.)

Sources say Dell toyed with the idea of taking his company private for years, believing he couldn’t reinvent it under Wall Street’s scrutiny.
Sources say Dell toyed with the idea of taking his company private for years, believing he couldn’t reinvent it under Wall Street’s scrutiny.Photograph by Wesley Mann

Dell’s next big idea was to sell PCs to customers directly, without a middleman distributor. He relied on low-cost direct marketing, printing ads in computer magazines and letting customers order by mail or via a toll-free phone number. (Later Dell would harness the Internet to the same end.) He also innovated on the supply-chain side, sharing the rich customer data generated by his direct sales with his suppliers—an unprecedented move that enabled Dell to deliver computers almost in real time, keeping costs and inventories low.

The model was a huge success: In 1988, with annual growth at roughly 130% and sales of $159 million, Dell took the company public. In 1992 it had nearly $550 million in revenue and made its debut on the Fortune 500. (Dell, at 27, was the youngest CEO on the list.) And in 1999, it became the top-selling computer maker in the U.S.

But the party didn’t last. By the mid-aughts, mobile phones were hot, clunky computers were not, and cheaper manufacturers from China were causing headaches. PCs were still a cash cow, but demand was declining; so was Dell’s piece of the pie, as it lost its market-share lead to HP. Michael Dell had stepped down from CEO duties in 2004, but in 2007 he came back to cope with the crisis.

As it became clear that the company needed to wean itself off PCs, the founder wanted to pivot toward equipment for data centers, a far more profitable market. The company embarked on an acquisition spree, buying enterprise-focused players like Force10 Networks, which made routers and switches, and EqualLogic, a maker of storage equipment.

According to people familiar with the company, Dell first dabbled with the idea of taking it private as early as 2007. His initial foray into privatization wasn’t exclusive to Silver Lake: Dell engaged with private equity firms including KKR, Blackstone, and TPG. Those talks didn’t pan out, but the more time Dell spent on his company’s turnaround, the better going private sounded. Changing direction—and hurting revenue in the process—under the short-term-focused eye of Wall Street was a tough undertaking. By 2012, Dell’s stock was trading at barely half its 2007 price, making a move to private status increasingly attractive. And thanks to a long-standing relationship, Dell thought he had the right partner.

In the late 1990s, as Dell’s fortune grew, he set up a firm called MSD Capital to manage his personal wealth (the letters stand for “Michael Saul Dell”). One of MSD’s first investments was in an unknown, tech-focused private equity firm called Silver Lake, which at the time was raising its first fund. Dell knew all of the founders—James Davidson, David Roux, Glenn Hutchins, and Roger McNamee, whom he had first met in the late ’80s, during his company’s IPO “road show” (at that time, McNamee was running T. Rowe Price’s science and technology fund). Dell would also become “vacation neighbor” to several Silver Lake partners; like him, they owned estates in Kukio, a gated community on Hawaii’s Big Island known as a “billionaire getaway” for the tech industry’s elite. (Dell also owns a nearby resort and golf course, along with his 18,500-square-foot estate, valued at a reported $64.7 million.)

Dell stayed connected with Silver Lake as it became a bona fide force in Silicon Valley. One of its biggest successes was plucking Skype from eBay ebay in 2010 and selling it to Microsoft 18 months later with a reported capital gain of $5 billion. The dealmaker behind this coup was Egon Durban, a managing partner and emerging star. In July 2012, Dell and Durban met at a Fortune technology conference in Aspen. The two clicked: “I’d say we definitely complement each other,” says Dell. One glaring commonality: Both like to make big bets, even when popular opinion is against them. Another bonding factor? Both men grew up in Houston.

Even as their sales waned, Silver Lake’s Durban recognized Dell’s PCs as a cash cow that could fund other products.Photograph by Wesley Mann

They shared a second key geographic connection: Durban, too, was Dell’s vacation-home neighbor in Kukio. That August, the two met in the Aloha State and talked about taking his company private, and over the next few months they hashed out what became the buyout. Dell rolled his company equity—he then had 16% ownership, worth roughly $4 billion—into the deal, throwing in an additional $500 million in cash. Silver Lake kicked in a cash equity investment of about $1.4 billion, and most of the rest was raised in debt financing and from the company’s own reserves. The deal would grant Dell 70% ownership of the private company.

Shareholders approved the sale, which paid them $13.65 in cash for each share of common stock, a 37% premium over the recent average closing price. But while those folks were appeased, others were dubious. As Durban tells it, many in the industry thought Silver Lake was crazy for buying a PC maker. “People looked at us like we were buying real estate in Cleveland—it could be a good thing but is hard to understand,” Durban says in an interview at the firm’s posh, marble-floored offices on Sand Hill Road in Menlo Park, Calif. Dell’s revenue fell further after the announcement of the buyout, making outsiders even more skeptical.

Where other investors saw a contracting industry, Durban saw untapped opportunity. “A dollar of cash flow in a large tech company is fundamentally mispriced,” he told an audience at a Fortune conference in 2015. Even with overall sales in decline, PCs generated cash that Dell could invest in more promising products, like storage and servers. Still, Dell and Durban soon faced a new challenge: Getting to No. 1—and fighting off archenemy HPE, let alone the threat from ascendant cloud services—was nearly impossible with Dell’s current size and scope. They had to get even bigger.

Michael Dell makes the case that his company’s merger with EMC has its true roots back in 2001. That’s when the two tech behemoths announced an alliance to jointly develop and sell storage and server tech—businesses in which Dell was just getting its feet wet. “What was under the covers was that EMC became our largest OEM customer,” says Dell, meaning a company that sells another company’s product as part of its offering. “In research and development, supply chain, sales, culture, we became friends.”

Another fact that was under the covers until now: Dell looked into buying EMC in 2009. Both companies hired big consulting firms to explore a merger, Dell says. “We did revenue synergy analyses and cost synergy analyses, and we had hundreds of pages of decks of how you would organize.” But the talks ultimately fell through, partly because of jitters related to the financial crisis. “While I have an above-average appetite for risk, not all participants had the same level,” says Dell.

After Dell went private, however, vaster forces began pulling the companies back together. Dell and Durban needed to offer a more complete range of products for enterprise customers. They believed that, together, Dell and EMC could dominate that field while streamlining costs. EMC, based in Hopkinton, Mass., faced challenges of its own. Revenue growth at the 37-year-old maker of storage systems had taken a hit, pressured by the cloud and the commoditization of hardware. EMC also had a complex structure, as a “federation” of several companies, the biggest and most valuable being VMware vmw , a maker of virtualization software (more on them later). Activist investors wanted EMC to divest assets and appoint a new CEO. But EMC’s beloved chief, Joe Tucci, didn’t have a clear successor.

None of those drawbacks deterred Dell and Durban. Less than a year after going private, Dell phoned Tucci. Recalls Dell: “I said, ‘Hey, Joe, maybe we should get the band back together. Let’s chat.’ ” By the summer of 2014, when the cloud had taken more market share from each company, both sides were eager to do the deal.

The obstacle was financial. EMC’s immensity (it had a market cap of $55 billion in 2015) and Dell’s already leveraged state meant this deal, too, would be paid for mostly with debt—upwards of $50 billion. The financing process ultimately involved a full year of sleepless nights and confidential meetings with banks. One key, late development: Credit agencies gave the hypothetical combined company a good rating—allowing it to attract a wider range of lenders.

By the fall of 2015, more than a year after Dell and Durban first approached EMC, the financial commitments were in place—with nine banks, including J.P. Morgan Chase and Goldman Sachs, onboard. On Oct. 12, 2015, the deal was announced, and Dell and Durban knew they were on the verge of something unprecedented.

It would take another 11 months for the deal to close. Michael Dell used that time to prepare, appointing two executives, one from EMC and one from his own management team, to lead the integration efforts. He announced an executive team that plucked leaders from both sides and shuffled roles. Karen Quintos, Dell’s chief marketing officer and the sole woman on his leadership team (former or current), became the new chief customer officer. Jeremy Burton, former head of product and marketing at EMC, is now CMO for the combined entity. And David Goulden, former head of EMC’s infrastructure group, now plays a similar though even bigger role at Dell Technologies. By the time the deal closed, on Sept. 7, 2016, the team was solidly in place.

The next steps for Dell Technologies, however, are much murkier. It will be years before the huge company’s sales teams and back-end systems are fully integrated. Layoffs, naturally, have also taken place—with about 3,000 reportedly given the pink slip (the company won’t confirm the number of layoffs but says it plans thousands of additional hires in the not-too-distant future). Several high-profile execs have also left since the deal was announced, including Amit Yoran, the CEO of the RSA cybersecurity unit, who departed in mid-December.

The team is also likely to change through attrition, because the need to pay down debt puts pressure on Dell and Durban to sell off businesses to generate cash. Just five days after the merger closed, they divested the company’s enterprise content management division (which makes software that organizes companies’ internal documents), selling it to OpenText, a Canadian software company, for $1.62 billion. Between the deal closure and early December, the company says, it retired $5.8 billion in debt.

Amid this disruptive maneuvering, Dell and Durban need to maintain a focus on aggressively fighting for market share in all three areas they sell to: servers, storage, and PCs. They also need to dominate in converged systems, selling a smorgasbord of IT components like hardware and server management software in bundled and customized packages. And they must succeed in selling all these products to, among others, the very cloud companies that are causing their traditional market to shrink. Amazon, Microsoft, et al. need servers and storage systems to be able to rent out computing power to the rest of us—and Dell and EMC are among the firms they’re buying it from.

With their new and ginormous scale, Dell and Durban think they have a good shot of blowing away their biggest competitor, Meg Whitman’s HPE. “There’s no question that for Dell to win as a combined entity, they’re going to need to take share,” says Matt Eastwood, a senior vice president at market research firm IDC. “This is a consolidation play, largely at the expense of HPE.”

But taking share—a.k.a. growing the business—and divesting assets aren’t necessarily aligned. One asset that’s unlikely to be auctioned off (and that provides some insight into Dell’s plans) is VMware, arguably the crown jewel of the EMC merger. VMware makes virtualization software, the tools that power the cloud by making it possible for multiple operating systems and functions to run on the same “virtualized” computer. It still functions as its own publicly traded company, as it did under EMC, but it is now majority-owned by Dell Technologies. And unlike other parts of Dell’s new empire, it is growing at 10% a year.

It would be tempting to sell VMware—given the company’s $34 billion market cap, doing so could wipe out a chunk of Dell’s debt in one fell swoop. But if Dell Technologies has a long-term future, it needs to hang on to this little engine that can. And that—ironically—means continuing to count two of Dell’s biggest threats, HPE and Amazon, as its biggest customers.

Dell acknowledges that he can’t predict how the big shift in the way companies buy and use technology will play out. “How fast the world moves from one way of doing IT to another way—each company will take their own pace on that,” he says. As for his path, it’s clear there’s more to come. He says going private and merging with EMC have been act I and act II of his career reinvention. “For act III, you’ll have to come back,” he says coyly.

Whatever that act may be, it’ll play out on a big stage. When Fortune talked with him in Austin, Dell was hosting what may be the last employee-customer conference to take place there. The next one, hosted by Dell-EMC, will take place in a much larger convention center Las Vegas. Yes: Dell Technologies has gotten too big for Texas.

CORRECTION, Jan. 3, 2017: Egon Durban grew up in Houston, but was not born there.

A version of this article appears in the January 1, 2017 issue of Fortune.

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