Dell Deal? WatchGuard CEO Recounts Public To Private Transition


If Dell decides to go private through a private equity transaction or other acquisition, Joe Wang, CEO of WatchGuard Technologies, might be able to offer some advice.

WatchGuard was a public company when it was acquired by private equity firms Francisco Partners and Vector Capital in 2006. Wang was hired by the equity firms and has led the company through its post-public life.

A Dell spokeswoman said the company won't comment on the private equity rumors, but it's no secret that Dell has struggled on Wall Street over the last year, dropping about 30 percent of its valuation in 2012 as it tries to convince investors that it is much more than a PC maker, following a slew of acquisitions over the last couple years.

Related: Follow The Money: 10 Recent Tech VC Investments To Watch

Likewise, WatchGuard was struggling in its last days as a public company, with stagnant technology and flat sales, Wang said. The acquisition by private equity infused new life into the company, which no longer had to worry about satiating investors on a quarterly, if not daily, basis, Wang said.

"The company was flat. It was not growing in a growing market. Companies like Fortinet were growing more quickly than WatchGuard. Today, we have double-digit growth. This year, specifically, we're looking at 18 percent growth and accelerating. It's a very different company," Wang said.

The biggest incentive to go private is to allow the company to invest for the long term, Wang said. Having to focus on quarterly profits does not allow as much R&D investment as might be necessary to grow the company, he added.

"As a public company, you try to focus on profitability because the stock price depends on it. It drives a company's behavior and focus on the short term. At WatchGuard, when the company was taken private in late 2006, we [used] the next four years to research and redevelop the product line."

A completely restructured product line would not have been possible as a public company, Wang added.

"You cannot just invest and pay close attention to the profitability. When you invest, you are going to see smaller corporate profits. That's very difficult to do," he said. "I can't speak for Dell, but that's the main benefit that I see.

"In terms of shareholders, if you're looking at making money in the next three, six or nine months, [investing in R&D] might not have worked. The private equity firms know that. They have a much longer horizon. They understand that profits would be [used] to turn the business around. In our case, we used the profits to rewrite the product so we could have an extremely competitive product. It allowed us to gain market share and accelerated growth. We're very different company now."

Wang said solution providers also stand to benefit from a vendor going private.

"The customers and partners are really not there for the quarterly profitability of the company. They don't benefit if the company made a penny more or less. What matters is that the product has good technology and service," he said. "When WatchGuard was taken private, partners were leaving. The technology was not competitive at the time. By reinvesting in the development of the technology, now we have great security technology, and customers are benefiting and partners are happy."

PUBLISHED JAN. 14, 2013