Dell/Perot and HP/EDS A Tale of Two Services Acquisitions

1Dell/Perot and HP/EDS A Tale of Two Services Acquisitions

A little over a year ago, HP (NYSE:HPQ) announced plans to buy IT consulting and outsourcing giant EDS. But storm clouds were gathering in the form of the worst economic downturn that many believe the U.S. has seen since the Great Depression. That environment has made the payoff for the HP/EDS deal lower than first imagined. And now Dell (NASDAQ: DELL), looking to shore up its own services organization in the wake of hardware commoditization, has announced plans to acquire IT consulting firm Perot Systems (NYSE:PER).

By Jessica Davis

2Dell, Perot; HP, EDS: A Tale of Two Services Acquisitions–The Cliff Notes

A little over a year ago, HP announced plans to buy IT consulting and outsourcing giant EDS. But storm clouds were gathering in the form of the worst economic downturn that many believe the U.S. has seen since the Great Depression. That environment has made the payoff for the HP/EDS deal lower than first imagined.

And now Dell, looking to shore up its own services organization in the wake of hardware commoditization, has announced plans to acquire IT consulting firm Perot Systems.

Here’s how the two deals stack up against each other, in brief:

3Dell Pays a Higher Price

Even though HP’s deal came before economists acknowledged we were in recession, company valuations have declined significantly since then, Dell is paying a premium for Perot at a time when many other acquirers are bargain hunting.

HP announces plans to buy EDS in May 2008 in a $13.9 billion deal. ($25 per share)

Dell announces plans to buy Perot Systems in September 2009 in a $3.9 billion deal. ($30 per share)

4Dell and HP’s Respective Cash Positions at Time of Their Deals

HP had $12.2 billion in cash at the end of April 2008.

Dell had $11.7 billion in cash as of July 31, 2009.

5EDS and Perot Systems Revenues

EDS 2007 revenue was $22.1 billion

Perot Systems 2008 revenue was $2.8 billion.

6The People

EDS 2007 employees: 140,000

Perot Systems 2007 employees: more than 23,000

7HPs Expectations for EDS

When HP announced its plans to acquire EDS, HP said it would more than double HP service’s revenue which amounted to $16.6 billion in 2007.

At the end of its fiscal 2007 which ended Dec 31, 2007, EDS had $22.1 billion in revenues.

HP and EDS together had collective services revenue at the end of each company’s 2007 fiscal year of more than $38 billion.

8The HP/EDS Deal Reality, Circa Recession 2009

For the first nine months of fiscal 2009, HP reported services revenues of $25.7 billion.

HP said that for its most recent quarter, Q3, its services revenue increased 93 percent to $8.5 billion because it now includes EDS.

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