Just when you were getting used to the 'exception' of Oracle-Sun merger, here comes another big news. Dell and Perot Systems have announced that they have reached a definitive agreement, whereby Dell will acquire Perot Systems in a transaction valued at approximately $3.9 billion.

Well, Dell's strengthening its services play is not exactly a surprise. Neither is its decision to try out inorganic means for that.

What comes as some surprise, though, is the target: Perot Systems. While Perot does have a strong play in the area of immediate interest to Dell-managed infrastructure services-it has a stronger revenue flow from application support and BPO. In the quarter ended June 30, Perot got 64 percent of its revenues from the two areas combined, while infrastructure services accounted for only 36 percent.

Why Perot?
So, what made Dell zero in on Perot Systems? Arguably, it is a combination of two factors namely the latter's size and its positioning as a new-generation outsourcing company. To begin with, there are not too many firms with significant infrastructure services outsourcing strength that are of the right size, ie large enough to give a serious push to Dell's own services business and small enough to be integrated well with itself.

Computer Science Corporation (CSC) and Affiliated Computer Services (ACS) are too large. Most others are too small. What also explains the preference for Perot Systems is that in the last few years, the company has transformed itself to be a new generation company, that has significant off-shore presence.

Not only does Perot have significant workforce in India, a lot of veterans of Indian Offshoring are now part of the company's operational leadership team, which includes Anurag Jain, application and BPO boss; Raj Asava; Chief Strategy Officer and Atul Vohra, Chief-Marketing.

In fact, India could well have been key in the entire transaction. Perot's significant offshore presence in India would help Dell deliver managed services remotely to its customers in America at a far lower cost. Dell's fairly large offshore customer service operations in India could complement Perot's back-office work out of India. But the obvious questions that remain are, as it still does in the Sun-Oracle merger, is what happens to the parts of the business of Perot that are not directly relevant to Dell's positioning today?

Perot is not just another application and BPO company. It is an undisputed leader in health care. It has now expanded that leadership beyond America by signing contracts in emerging markets, such as the one it recently announced in India-a multi-million dollar deal with one of India's top new generation health care services company, Max Healthcare. What would happen to those businesses? Or, will we see a new Dell, which sells you not just its boxes but the entire IT services and even BPO. The guys at Palo Alto would not have to defend their positioning so hard any more.

SHYAMANUJA DAS
Source: DQ

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