Dell Takes Further Steps to Divest SecureWorks
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Quick Read: Essential Insights
- Dell Technologies is revisiting the prospect of selling SecureWorks after previous attempts did not succeed.
- Investment bankers from Morgan Stanley and Piper Sandler have been brought in to investigate potential buyers, which may include private equity firms.
- SecureWorks has an estimated market value of around US$800 million (A$1.17 billion).
- Dell maintains a 79.2% ownership stake in SecureWorks and has control over 97.4% of its voting rights.
- Following news regarding a potential sale, SecureWorks’ shares surged by as much as 34%.
- Dell initially acquired SecureWorks in 2011 for US$612 million and took it public in 2016.
- SecureWorks has encountered difficulties in distinguishing its services amidst larger cybersecurity rivals, resulting in a notable drop in its share price since its peak in 2021.
- Dell has seen advantages from increasing investor interest in AI, with its shares climbing by 46% this year.
Dell Investigates Another Sale of SecureWorks
According to sources familiar with the situation, Dell Technologies is once again considering a potential sale of its cybersecurity division, SecureWorks. This is not the first instance where Dell has attempted to divest the US-based cybersecurity company. Previous efforts to find a buyer were unsuccessful, but Dell is making another attempt by engaging investment bankers at Morgan Stanley and Piper Sandler to assess interest from potential acquirers, including private equity firms.
With a market value estimated at about US$800 million (A$1.17 billion), SecureWorks could attract private equity firms looking to invest within the cybersecurity sector. However, there is no certainty regarding a deal, and Dell may ultimately opt to keep ownership of the firm.
Dell’s Ownership in SecureWorks
Dell currently possesses a 79.2% stake in SecureWorks, primarily via Class B shares, which also grant it control over 97.4% of the voting stock. This controlling position allows Dell to be a key player in any potential sale, enabling it to influence the future direction of SecureWorks largely at its discretion.
Prior Efforts to Sell SecureWorks
This is not the first instance of Dell looking to sell SecureWorks. In 2019, Dell attempted to divest the company as part of its larger strategy to decrease debt. Nonetheless, that initiative did not culminate in a sale. The persistent challenges of differentiating SecureWorks’ offerings in a saturated cybersecurity market have likely fueled Dell’s renewed consideration of selling the business.
Challenges and Market Dynamics for SecureWorks
Established in 1998, SecureWorks has positioned itself as a cybersecurity provider with a suite of security solutions to safeguard businesses from cyber threats. Its cloud-based platform, Taegis, focuses on detecting advanced threats. Despite these capabilities, SecureWorks has found it challenging to compete with larger cybersecurity organizations, a situation reflected in its share price, which has diminished by over two-thirds from its apex in September 2021.
Impact on SecureWorks’ Valuation
The prospect of a potential sale positively affected SecureWorks’ share price, which soared as much as 34% following the announcement. Nevertheless, the stock later moderated its increases, signaling market uncertainty regarding the feasibility of a deal. The company is expected to disclose its second-quarter performance on September 5, which may offer additional clarity on its results and future outlook.
Dell’s Broader Strategic Focus and AI Growth
In recent years, Dell has been divesting non-core assets as a component of a wider strategy to optimize its operations and mitigate debt. Concurrently, Dell has capitalized on heightened investor enthusiasm for artificial intelligence (AI). The demand for the company’s AI-oriented servers has surged, leading to a 46% rise in Dell’s share price this year, significantly outperforming the S&P 500 index, which has climbed by 18%.
Conclusion
Dell Technologies is contemplating selling SecureWorks, a cybersecurity firm it initially purchased in 2011. Despite prior unsuccessful attempts to divest the company, Dell is re-examining the option of a sale through the expertise of investment bankers from Morgan Stanley and Piper Sandler. SecureWorks is currently valued at around US$800 million (A$1.17 billion) and has struggled to stand out in a competitive landscape. While a sale is not assured, the news has already influenced SecureWorks’ share price, which saw a substantial increase before retracting somewhat. Dell’s strategy of disposing of non-core assets and leveraging AI market trends has bolstered its performance this year.