If you’ve been waiting to get in on the ground floor of a tech IPO, the wait could now be over. Dell Inc. plans to take its SecureWorks security services business public in an initial public offering that could be raise more than $100 million. But is the SecureWorks IPO the tech IPO you’ve been waiting for?
That depends. On the plus side, SecureWorks is an established, 18-year-old business that has thousands of clients in countries all around the world. It has a track record of consistently growing revenue, which reached $339.5 million last year.
For the past five years, SecureWorks, based in Atlanta, has operated as a subsidiary of Dell. Dell acquired the business for a shade less than $612 million and has invested in growing the business. By these measures, SecureWorks has little in common with so many of the younger tech companies that often go public.
Tech IPO With Some Uncertainties
The downside? Well, despite its maturity, its extensive customer base and its strong rate of growth, this business shares some of the less attractive traits with the younger tech IPO companies. In short, it is not profitable. It lost $72.3 million last year.
The caveat here is that it is not entirely accurate to characterize SecureWorks as your typical money-losing tech IPO company since it has operated as a subsidiary of Dell since 2011. It is not at all uncommon for companies to invest aggressively in growing certain subsidiaries. The fact that Dell now produces a breakout of SecureWorks’ financials that shows it is losing money does not necessarily mean it couldn’t turn a profit as a public company.
The Dell Factor
Still, there are some uncertainties around the SecureWorks IPO. For one thing, Dell itself has not been the most transparent business since it was taken private in a $24.9 billion shareholder buyout three years ago.
Moreover, there is reason to question whether SecureWorks is really fit to go public and operate as a standalone business, or rather, if Dell is motivated by its desire to raise cash. Dell is in the process of merging with EMC Corp. (NYSE: EMC) in a $67 billion deal that has forced both companies to sell assets to pay for the deal.
While other tech IPOs can afford to sit back and wait for more favorable market conditions or a firmer balance sheet, it appears Dell does not have the luxury to wait on SecureWorks. It is widely suspected that the timing of Dell’s announcement last year of the planned IPO was triggered by its need for cash.
This does not mean SecureWorks won’t turn out to be a good investment. Indeed, at a time when security is one of the main focuses of the tech industry, this is an industry leader with a strong track record. Unfortunately, there is a lot we just don’t know about the business or how it will perform independently.
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