Is Michael Dell rescuing his little brother, or does Dell spending $165 million to buy email continuity firm MessageOne make sense? MessageOne has a good product, but without the sexy security component offered by Postini or FrontBridge, buyers never picked up the 10-year-old company. So the deal has more than a hint of nepotism.
Adam Dell was a co-founder, the former chairman and a financial backer of MessageOne. A filing with the SEC points out that many Dells stand to gain from the transaction, thanks to $45 million that will go to Adam Dell’s venture funds:
- Impact Venture Advisors (wholly owned by Adam Dell) is expected to receive approximately $966,000 ($904,000 attributable to its interest in Impact Venture Partners and $62,000 attributable to its interest in Impact Entrepreneurs Fund)
- Michael Dell, Susan Dell and their children’s trust are expected to receive collectively approximately $12 million ($10.7 million attributable to their interest in Impact Venture Partners and $1.3 million attributable to their interest in Impact Entrepreneurs Fund)
- Mr. Dell’s parents are expected to receive approximately $450,000 (all attributable to their interest in Impact Entrepreneurs Fund).
Michael and Susan Dell have indicated that the proceeds which they and their children’s trust receive from the acquisition will be donated to charity.
When you’re Michael Dell, the money isn’t everything, but helping a brother get rid of a 10-year-old drag on the portfolio might count as a favor. But MessageOne fits with Dell’s efforts to offer more managed services, so sometimes a little nepotism isn’t all bad.
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6:22 AM PT
[...] Stacey Higgenbotham of Gigaom writes “When you’re Michael Dell, the money isn’t everything, but helping a brother get rid of a 10-year-old drag on the portfolio might count as a favor. But MessageOne fits with Dell’s efforts to offer more managed services, so sometimes a little nepotism isn’t all bad” [...]
9 comments so far
8:00 AM PT
It would be a lot easier for Dell to give his brother $45 million. He has the money, and shareholder concerns (even lawsuits) might be more expensive. I’d give him the benefit of the doubt on this. Not like investing in 23andout, or whatever that genetic screening firm’s name is.
8:07 AM PT
Hi Stacey — You’re accurate to say that the acquisition is a good fit for Dell. But, you’re off the mark with the inference about MessageOne’s standing. The company is the fastest-growing technology company in Texas in late 2007, according to Deloitte, and is the leader in this space with market credibility as an industry-standard platform and a marquee list of customers and key channel partnerships. What’s more, MessageOne has a demonstrated ability to scale and globalize.
Dell researched several companies and business models. Based on our offerings and Services strategy, we chose the Saas model and determined that MessageOne offered the best fit for Dell.
8:15 AM PT
I have covered M1 for years and really think it’s a good business, but looking at it from a venture investor’s perspective, M1 has taken a long time to exit. That is what I meant by saying it was a drag on the portfolio.
9:16 AM PT
Stacey, yet, another well written post. But, whether the investment took 2 years or ten years, I’m sure they are happy for the exit (pay off). Though I believe the life of the venture funds is ten years, right?.
This acquisition lines up well with the recent partnership of Fonality. I think it’s pretty clear where Dell is heading.
10:46 AM PT
Alex, there is a ton of math invovled in figuring out venture returns for a single exit and the entire fund, but at a basic level if we assume the purchase price is the same, an earlier exit is better than a later one because it gets the investor their cash more quickly and without possible dilution. Obviously, the longer a firm waits to exit, the bigger they hope the exit will be. As for ten years, most VCs investing when M1 started aimed for an exit within four to seven years.
12:20 PM PT
This acquisition smells, and not in the good way. It goes to show how much the board is watching out for the stakeholders by allowing this thinly-veiled pay-off to the Dell family. Congratulations to Satin, Paul and Mike. I hope there aren’t any more proverbial skeletons in the closet When the SEC and shareholder suits come a-knockin’.
2:06 PM PT
Good of Michael and Susan to donate their share to charity.
Although Impact was in for 10 years, some other VCs got in later and may have gotten a decent return.
I believe at about 10 years the typical fund ends (see Alex’s comment). I’ve heard of investment groups going around to funds to buy those 9-10 year companies that have value at a steep discount.
4:21 PM PT
This one doesn’t look good aside from how it actually happened.
12:51 AM PT
Let’s just hope Adam Dell’s next venture is not a Victoria Secret franchise that Michael will have to bail out and rationalize it by saying that Dell needs an edge in the retail space..
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