'Going private allowed us to take more risks' - Dell CFO Tom Sweet

The finance chief of Dell Technologies talks mergers, quarterly reporting and the importance of CFOs saying yes.

by Adam Gale
Last Updated: 03 Jan 2018

When Tom Sweet joined what was then just called Dell Inc in 1997, times were good. The PC was king and Dell was fast on its way to becoming the premier PC manufacturer. But reigns don’t tend to last long in the technology business.

Dell’s light dulled somewhat in the web 2.0 world of mobiles, tablets, apps, videos and the cloud. After 25 years as a listed entity, the company went private in a leveraged management buy-out in 2013, acquiring cloud services provider EMC three years later in the largest merger in tech history, forming Dell Technologies.

Few will have had such a good view of this high octane period in the company’s history as Sweet, now Dell Technologies' CFO. 

MT: Dell’s been through quite a few changes in your time. How did privatisation change the way you work, beyond having to prepare all those quarterly reports?

Sweet: I give Michael [Dell, founder and CEO of the eponymous firm] a lot of credit here. He’d perceived that the company had become a little risk averse and wasn’t as entrepreneurial as he wanted us to be. The leadership buyout unlocked the company, from a risk-taking perspective, allowing us to take bigger bets.

From a finance perspective, it changed how we measured the business. Clearly we’ll always have a P&L, but if you think about where value is created, it’s all about cash flow and cash generation. We’ve shifted a number of our metrics away from traditional financial majors like operating income (though that’s still important) to cash generation and return on invested capital. It’s allowed us to take a longer term view.

Now, you could say wait a minute, isn’t that your job anyway, whether you’re in public or private company. And the answer is yes, but at times as a public company you do fall into a trap of trying to manage the quarter to a set of expectations from a group of Wall Street analysts and investors.

MT: Long-term thinking is a virtuous goal, but in a world that we’re always told is becoming more uncertain, isn’t it harder than ever to achieve?

Sweet: That’s the great thing about the tech industry. It’s a fast changing environment and extraordinarily disruptive, so you have to think about how you’re going to reinvent yourself in 24 to 36 months. It’s enabled things like Dell Technologies Capital, a venture fund with over $700m invested in tech start-ups around the globe, including here in the UK.

MT: Tell us about the $63bn merger with EMC. What was the logic behind that?

Sweet: At its base level, this was Michael thinking about where technology was headed and determining we needed more capability, particularly with data centres. So he had the idea of reaching out to Silver Lake [a minority investor in Dell Technologies] and EMC. He had a long time relationship with EMC head Joe Tucci, and legacy Dell had had a partnership in the late 90s and early 2000s, reselling legacy EMC’s solutions. My involvement was primarily in how would you finance it and get it done.

MT: Why did you go to the debt markets to finance the deal?

Sweet:  Michael wasn’t interested in diluting his equity holding such that he didn’t have the right level of control, so that was a consideration. There was some new equity money but by and large we financed the transaction by debt financing, by taking some cash off the balance sheet and by the issuance of a tracking stock. The reason we were able to do it was that the debt and capital markets were very receptive to what we wanted to do, and that allowed us to fund the transaction at frankly very favourable interest rates.

MT: It can’t have been easy to bring the two firms together.

Sweet: It hasn’t been without its share of challenges. As good as the planning was, there are always some things you won’t get right, so we’ve had to fix a few things. For example, we got our sales coverage models slightly wrong at first. But it’s gone more right than wrong.

It comes down to people, building the relationships and buying into the vision of what we’re trying to do. The two companies had a lot of cultural similarities and common values, so that allowed us to effectively create a new culture for Dell Technologies.

MT: What makes a good CFO, in a modern company?

Sweet: Obviously as a CFO you need to be grounded in the financial basics, but you don’t need to be an expert in all aspects of finance, you just have to surround yourself with a team that supplements or complements your skills. I came up through the accounting side, so I didn’t spend a lot of time on the capital markets, but I do have a strong treasury and capital markets team.

The CFO is also the person along with the CEO and a handful of others that will run the strategy of the company and execute the business model. Then it’s about enabling the business. How are you enabling the CEO to drive the business forward?

MT: It’s interesting that you use the word ‘enabling’. Often the FD is seen as a gatekeeper whose job is to say no, to maintain discipline, but the other way of looking at that is it’s your job to say yes, just judiciously.

Sweet: My job in many respects is about choices. At a fundamental level, it’s about capital allocation. If a leader of a business unit comes to me with an opportunity to invest and grow, then we’re going to have a spirited conversation about what that looks like, the risks and the return.

MT: How did you find the transition to strategic, corporate finance from your accounting roots?

Sweet: I was very fortunate to have a leadership team and set of mentors that enabled me to do that. At one point I decided I wanted to run a business unit, and they said well then we’ve got to get yourself out of finance, and go run sales for two years, experience the other side of the business. Ultimately that gave me the experience and skills sets that positioned me to be considered for the job I’m in today.

MT: You’ve segued perfectly to our final question. What advice would you give yourself at 20 years old?

Sweet: Take some risks. Be thoughtful about it, of course, but try some different things, be open-minded. I’ve gotten the most out of opportunities where people approached me and said you should do this job that I didn’t want to do, but they’ve said no, take it, it will be good for you.

The first 10 to 12 years of your career should be about skill-building and getting different experiences. Then as you get into your mid 30s and mid 40s, it’s about taking those skills and focusing them into areas that you’re interested in. 

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