Is Dell Gearing Up to Make Acquisitions?

Dell's raising of $1 billion through selling bonds and its hiring of a merger-and-acquisitions specialist from rival IBM have industry observers believing that it is about to start buying some companies. Reports have sources saying that Dell officials are expecting to buy a large company this summer, and at least one analyst says that it would be smart for Dell to grow its business through acquisitions as it looks to keep up with aggressive rivals such as IBM and HP.

Dell is making moves that have industry observers believing the company is on the verge of making some acquisitions.

Dell officials have said in the past that they are interested in buying companies, and apparently they're building up its cash reserves.

The company on June 10 sold $1 billion in bonds, adding to the $9 billion it already has on hand, according to a report in the Wall Street Journal. Add to that Dell's hiring of IBM mergers and acquisitions specialist David Johnson and the aggressive acquisition approaches by such rivals as IBM and Hewlett-Packard, and the pieces are getting put in place for a push by Dell to jump back into the acquisition game, analysts say. IBM has sued Johnson to stop his move to Dell, and he reportedly is working for Dell outside of the M&A space.

Dell spokespeople have said that the raising of the money through the bond sales was for general purposes that could include buying companies, among other reasons.

However, the WSJ quoted an unnamed source as saying that CEO Michael Dell is expecting to buy a large company, though the source wasn't specific about which company. Businessweek offered a list of six possible acquisition targets, including BMC Software, EMC and Symantec, as well as Palm and Motorola's phone business in the handheld space.

Dell, which has had disappointing earnings reports over the past few years, has bought 10 companies over the past three years, which is fewer than such rivals as IBM and HP. However, Charles King, an analyst with Pund-IT Research, said it makes sense for Dell to start looking to grow through acquisition.

The economy is making it attractive for IT vendors to grow their product portfolios and customer bases by buying other companies, King said, and some companies have taken advantage of it.

"IBM and EMC have been more aggressive in their acquisition strategies and have been more successful than a lot of others," King said.

However, while Dell hasn't cast a wide net, it has shown that it can buy a company and successfully merge it, particularly with its $1.4 billion purchase of EqualLogic in 2007. It gave Dell a solid footprint in the iSCSI world and a nice complement to its work with EMC in the enterprise storage space, King said. Dell also has built out its services offerings through acquisitions of Everdream in 2007.

He said he could see Dell buying companies that help it grow its cloud computing strategy, which will build on the partnership Dell announced with Cisco Systems in January around data center management. The company also rolled out its Dell Management Console in March, which is built upon Symantec's Altiris Management Platform.