Ripple Effect

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: Just six months back, doing away with Perot Systems was probably not even on the mind of company’s consulting practice chairman, Jim Champy. During a very short chat on his way to the Mumbai International Airport, Champy seemed excited about the healthcare sector. In fact, he was animatedly talking about another acquisition in this space and leveraging it for Perot. Champy’s view of the economic downturn had then not even indicated of such a move and he clearly stated “we expect single digit growth this year.” From then to now, things moved quite quickly as Dell finally zeroed on its option to Perot Systems for service capabilities.

The price of $30 per share for Perot Systems that turned the deal to be worth $3.9 billon deal is expected to trigger Dell to a position among the top IT providers. Dell is the secondlargest personal computer player and Perot one of the technology service providers in the healthcare space. Perot’s revenues for 2008 touched $2.8 billion, second-quarter net income rose 3% even as revenue slipped 11%. While operating margins have averaged approximately 7% of revenue, it had a cash flow from operations, including over $200 million in the most recent fiscal year. In addition, backlog now totals more than $8 billion and has been growing steadily over the past several years.

Perot manages customers’ computer systems, data centres, software and websites through multi-year contracts. The company’s revenue was forecast to decline 9% this year, according to the average estimate of analysts in a Bloomberg survey. While Dell’s net annual revenue dipped 22% to $12.7 billion, the deal will elevate to their combined enterprise and services business to about $16 billion with services revenue of about $8 billion over the past four quarters. Dell’s revenue will drop 16 %, analysts project.

Interestingly, Dell was said to be scouting for a services company since last five years and there were speculations that Dell was looking at Unisys. But Unisys financials were going north even when the outsourcing industry was at its peak. So largely, Perot Systems just looked smarter than Unisys—though Unisys has a more global footprint.