Dell’s Acquisition of Perot Systems: Big News for Services Sector

By: Mark Mayo, Partner & President, Global Resources Management, TPI

The big business news of the day came in our own backyard: The $3.9 billion acquisition of Perot Systems by Dell. For Perot, the benefits are increased global reach, access to capital, cross-selling opportunities with Dell’s client base, and of course the obvious: the $30-per-share purchase price valued the company at a 68% premium. For Dell, it will help it diversify its hardware-heavy revenue stream at a time of slowing computer sales.

But for the market as a whole, this is not a game-changer. Dell and Perot had a combined $16 billion in enterprise hardware and IT services over the last four quarters, a far cry from rivals such as HP-EDS and IBM.

What does this mean for clients? The biggest challenge to watch will be integration. During a conference call today, the two companies stressed how much they have in common, particularly a focus on relationships, and noted that they have partnered on selling services for the past two years. But mergers

between product companies and professional services firms have historically been very tricky to pull off, and Dell hasn’t made many acquisitions during its history. To that end, we were pleased to see that Perot CEO Peter Altabef will remain at the helm, reporting directly to Dell founder, chairman and CEO Michael Dell, and the top Perot management team has pledged to stick around, too. Their job will be to retain the necessary components of a service company’s culture, far different from that of a product company. 

 

We at TPI have great respect for Altabef, as well as for Dell services head Steve Schuckenbrock. The latter’s hiring in 2006 was a sure sign that the PC giant was dead serious about the services business. Still, most of the services work it has done over the years has been closely linked to its products, especially end-user computing. Whether Dell can capitalize on Perot’s client base and strength in health-care and government, two areas poised for growth in the current political climate, remains to be seen.

What’s not in doubt is the future of consolidation in this industry. Outsourcing is only getting more competitive and there’s still more rationalizing to do. But for today, the headlines belong to a couple of titans from Texas. This will be a deal to keep your eye on.