Dell’s Supplier Pay Tactics May Aid EMC Takeover

As Dell looks to finance its acquisition of rival EMC, reports say EMC’s suppliers may be the ones helping to foot the bill.

According to reports by The Wall Street Journal on Tuesday (July 19), EMC may adopt Dell’s supplier payment practices as it moves to take over the company. The $60 billion proposed acquisition of EMC is the largest-ever in the technology sector by market value, reports said.

To help finance that cost, Dell may look to extend payment terms to EMC suppliers, like it has done with its own business partners.

“Dell is one of the technology industry’s most aggressive companies at delaying payments to help finance its operations,” reports stated, adding that the company averaged 107-day payment terms in the most recent quarter.

That’s more than double what EMC takes to pay suppliers, at an average of 42 days.

While delaying payments doesn’t actually give these businesses more cash, it would “effectively mean replacing debt to creditors with debt to vendors,” the publication explained, a much more manageable and favorable debt for the tech giants.

If Dell does decide to extend the payment terms for EMC suppliers, analysts estimate it could hand an extra $1 billion in working cash to the company the first year after the takeover is completed.

The company plans to finance its acquisition by divesting about $5 billion worth of IT services and software units, while it has already borrowed about $40 billion.

Reports said EMC suppliers declined to comment on the matter, though one did say it does not see cause for concern.

“We have full confidence in the Dell/EMC merger,” the supplier stated.

Reports added that Dell has already extended invoice payment terms to suppliers in the past in order to free up working capital — that included extended payment terms to Microsoft and Intel vendors. Its current 107-days payable outstanding, however, is significantly higher than the 87 days it took to pay suppliers just three years ago, reports said, citing data from SEC filings.

In the U.S., the average time companies take to pay suppliers increased from 35 days in 2009 to 45 days in 2015, according to the Georgia Institute of Technology’s Financial Reporting & Analysis Lab.