Dell borgs CIT financing partnerships in Canada, Europe
Dude, you're going to get a Dell ... banker
Being an IT giant, as Dell wants to be, means controlling your own leasing and financing arm. And so Dell is taking control of the financing arms that it ran in conjunction with CIT Group in Canada, and of Dell-related assets for CIT Group's operations in Europe.
CIT Group's Vendor Finance operation is one of the big names in IT-equipment leasing, along with AT&T Systems Leasing and Newcourt. El Camino and Comdisco, now defunct, were two big independent lessors in the 1980s and 1990s, as well.
IBM Global Finance, the captive financing arm of Big Blue, was also a powerhouse and continues to be, more or less setting the market price for used equipment that bears its brand and using IBM's great big piles of
cash debt to finance reseller and customer acquisitions of its wares.
The freestanding and captive financing organization made it possible for many midrange and large enterprises to spread the cost of acquiring their expensive proprietary minicomputers and mainframes over time, as well as spread out some of the risk of acquiring them. They also helped the Unix systems and then x64-based server build-outs of the 1990s. While IT financing is not the business it was – yet another effect of the commoditization of servers and storage – it's still important and Dell wants to control it.
Dell and CIT Group have been partners for fourteen years, and according to a Dell spokesman the financing partnership between Dell Financial Services and CIT Vendor Finance was mostly about financing desktop and notebook PC purchases for consumers and businesses that didn't want to shell out their cash all at once to acquire machinery from Dell.
While Dell still offers consumer financing to help cushion the economic blow of buying PCs and peripherals, Dell Financial Services is more focused on providing financing to help small and medium businesses get servers, storage, and networking without locking up their cash – or to allow startups and SMBs get gear even when they don't have the cash, if they have collateral and good credit.
As part of the original agreement between Dell and CIT, the plan was always for Dell to take over the whole shebang at some point, says the Dell spokesman. In 2007, CIY sold off the 30 per cent stake it had in Dell Financial Services to the IT vendor for $306m, but CIT still kicked in money to invest on certain deals.
There was enough CIT money invested in Dell deals that in July 2009, when the economic meltdown was hitting hard and CIT Group was working to avoid bankruptcy, CIT owed Dell $35m. At the time, Dell said that CIT did around $100m in financing deals with Dell customers in the United States through its relationship with Dell Financial Services. The two work together on financing deals in 25 countries.
Or at least they did until now. Dell has acquired the remaining portion of the Canadian financing partnership it has with CIT Vendor Finance. Dell is also buying up the assets and sales and service functions of CIT Vendor Finance's operations in Europe relating to Dell equipment.
The move is meant to give Dell full control of "the customer lifecycle", and will allow for financing terms and conditions to be directly integrated in sales deals. These acquisitions of CIT's Dell-related operations in Canada and Europe cuts down on the paperwork, speeds up the sales cycle, and presumably brings Dell more profits.
The acquisition of CIT's stake in the Canadian financing partnership will be done around the middle of this year, with the European asset acquisition taking longer, perhaps closing at the end of 2011 or in early 2012, according to the Dell spokesman.
IBM and HP, Dell's main rivals in the systems racket, have their own captive financing units, and it is time for Dell to leverage its $13.9bn cash hoard to boost its reseller channel and help push direct sales to cash-lean customers.
Except in markets where Dell wants to spread its risks around – as it did a decade and a half ago when it first started offering financing to consumers – it doesn't make much sense for Dell to have a middleman between itself and its customers.
Providing financing services directly to customers makes a lot more sense than some of the acquisitions Dell might otherwise do with its money. ®