Dell, VMware deal would be big, but maybe not for healthcare

If VMware's rumored purchase of Dell Technologies comes to fruition, it will be the largest tech deal in history. But its effect on healthcare could be minimal, despite the fact that both companies have solid footprints in the industry.

"I don't see any obvious threats to the healthcare industry," said Brad Haller, a director in West Monroe Partners' M&A practice. "I can't forecast any major switching."

Speculation has Dell considering multiple ways to make itself available on public markets. One of those options is a merger of sorts with VMware, which had $7.1 billion in revenue in 2016, compared with Dell's $61.6 billion in fiscal 2017. Dell already owns 80% of VMware, though, so the merger wouldn't be straightforward. One way it could happen is in reverse, with smaller VMware buying larger Dell, thereby letting Dell be publicly traded without going through an IPO.

That could end up helping Dell eventually pay down some of its $50 billion in debt, some of which came from the company's 2015 acquisition of EMC—which had a stake in VMware—for $67 billion

VMware has moved into healthcare hoping to position cloud and desktop virtualization as a means to improve efficiencies and reduce costs. In documents filed with the state of California, the Palo Alto-based company indicated that it plans to lay off 159 workers this year, as first reported by the Silicon Valley Business Journal.

"What's going on here is essentially a restructuring of business to morph it into something else," said Paul Schrimpf, a partner at brand and marketing consultancy Prophet. "Since there's already an existing relationship of these two entities working together, I'm not sure what the reverse merger does in terms of near-term change in the ingredients of what they bring to the market."

At the outset, a deal might stymie research and development at VMware, Haller said. "They might not be able to scale up certain investments as quickly as they might be able to do today," he said, a hindrance that would affect all industries, not just healthcare.

As more companies both inside and outside of healthcare move to the cloud and virtualized systems, VMware and similar companies have become essential, said Jeff Sage, a healthcare adviser for PA Consulting Group.

"VMware has been perhaps the most valuable asset within the inventory of brands, products and platforms that Dell has acquired," Sage said. "Irrespective of what goes down, ultimately the VMware technology is the primary value, and it is unlikely the VMware platform is going to be compromised as a result of any transaction."