If the markets are right, Michael Dell has paid too much for
Perot Systems.
Dell is paying $30 a share cash or about $3.9bn, about half its
$7.9bn cash hoard, for all of Perot Systems, the IT services firm
founded by H Ross Perot.
Dell says that the expanded company will provide a broader range
of IT services and solutions and optimise how they're delivered;
extend Perot Systems' reach globally and provide a sales track into
more Perot Systems customers. The firms' combined sales for the
past four quarters equate to about $16bn, about half coming from
services and support.
But analysts are puzzled by the extravagant price Dell has paid
for Perot. Most agree that the two Texans share a common can-do
culture and autocratic leadership style, but that's it. Dell does
hardware; Perot develops and manages systems.
Investors responded by dumping Dell shares, which fell from over
$17 to under $16.25, and stocking up on Perot , pushing its share
price from $19 to just under $30 a share.
Robert Morgan, a director of outsourcing consultancy Hamilton
Bailey, who has done work for Perot Systems, reckons Dell is after
Perot's expertise in health care systems.
Electronic healthcare records are the next big thing in the US
and Europe, he says, and health IT is "desktop-intensive", giving
Dell a massive potential market to exploit using Perot's account
control.
Lee Ayling, director of EquaTerra, an outsourcing consultancy,
thinks Dell wants Perot's expertise in managing very large IT
infrastructures, again to be first in line when clients refresh
their technology.
"I've done a number of deals where clients have been keen to buy
Dell, but Dell has tried to sell them managed services," he says.
"The question has always been, 'where have you done it before?' and
the answer up to now has been, 'nowhere'."
Dell faces several problems. Firstly, its hardware business has
been hit by the recession. In response it closed its Limerick,
Ireland plant, shifting production of mobile PCs to OEM
manufacturers in SE Asia, mainly China. It's unlikely that Dell
will be able to buy kit cheaper.
Secondly, Perot is a second-tier player in the IT services
business. IBM and HP dominate. Also, a series of changes of mind by
key European customers saw Perot's market footprint shrink outside
the US.
Morgan reckons it will cost a lot for Perot to rebuild that
business, something Ayling reckons won't happen for at least 18
months, and then probably on the back of global deals done with US
customers.
But there is potential for a game-changing move, Ayling reckons.
Dell has made a fetish of simplifying the purchase process for
consumers. With cloud computing growing in popularity, Dell might
use Perot's software development skills (from India) and iron-clad
management expertise to offer businesses cloud based
applications.
Morgan thinks this might even go further. With Google and
Microsoft starting to offer services in the healthcare arena, there
might be room for Dell to deliver the desktop hardware, Perot to
deliver specialised health (or other vertical market) software and
manage the customer relationships, and for say, Google to provide
the back-end processing.
Would that make Dell a contender for the NHS's business? It's
probably too soon to tell, but Ayling thinks Europe, which is a
less mature managed systems market than Britain, might be a happier
hunting ground. In time.