Dell-Perot game plan: Government is a 'big big market'

Dell is acquiring Perot Systems for $3.9 billion, the companies announced today. Experts say the acquisition, which the companies call "a compelling combination of two iconic information technology brands,” will create a company better geared for the solutions-driven federal marketplace.

Perot Systems Government Service expects to become a larger player in federal contracting as its parent company is bought by Dell, a Perot Systems executive said today.

Perot Systems will be able to increase its federal sales by working with Dell’s federal sales team, Ross Perot Jr., chairman of Perot Systems, said today during a conference call with Michael Dell, chairman and chief executive officer of Dell. Perot Systems has been building its presence in the federal market since 2001 but now, with Dell's additional resources, Perot Systems can carve out that place, especially in health care, Perot said.

“So for us [government is] going to be a big, big target,” he said.

Perot Systems Government Services accounts for 27 percent of Perot Systems revenue. In fiscal 2008, Perot Systems had $397.4 million in overall federal revenue, according to USASpending.gov.

Meanwhile, to Dell’s advantage, Perot Systems has a larger presence than Dell in Washington, the center of federal business. Dell, based in Round Rock, Texas, can use Perot’s presence to show itself as more than a hardware dealer, said Larry Allen, president of the Coalition for Government Procurement.

Dell is viewed primarily as a desktop and laptop dealer to the government, but these days agencies are buying more services to accompany products. For example, on Schedule 70, agencies spent more than $10.9 billion on services in the first 10 months of fiscal 2009, according to the General Services Administration.

Dell is the largest seller on GSA's information technology Multiple Award Schedule 70. Through July, Dell has more than $888 million in sales, outpacing the next largest vendor, IBM, by more than $361 million, according to figures from GSA. In fiscal 2008, Dell had more than $1.2 billion in overall federal sales, according to USASpending.gov.

Over the past four quarters Dell and Perot Systems had a combined $16 billion in overall enterprise-hardware and IT-services revenue, with about $8 billion from enhanced services and support, according to the companies.

“We consider Perot Systems to be a premium asset with great people that enhances our opportunities for immediate and long-term growth,” Dell said.

He also said the acquisition makes sense because the two companies complement each other. The companies say the merger will mean a broader range of IT services and solutions and more efficient delivery. Perot Systems will be able to broaden the reach of its capabilities, and more Perot Systems customers will have access to Dell computer systems.

Once the acquisition is complete, Perot Systems will become Dell’s services unit.

With the two companies’ resources acting as one, bigger federal contracts and their demanding requirements are within their reach, said Alan Chvotkin, executive vice president and counsel for the Professional Services Council.

Also, the Dell-Perot Systems merger will rival the merger in 2008 between Hewlett-Packard and EDS and other similarly sized mergers.

Experts say the long-lasting effects of big-company mergers on customers won’t be realized for some time — long after the legal part is finished. They say the toughest part will be maintaining their customer focus, a quality both companies emphasized. But the companies likely have already reached out to their customers, reassuring them about the acquisition, Chvotkin said.

The companies said the transaction, which is subject to customary government approvals and the satisfaction of other customary conditions, is expected to close in Dell’s November-January fiscal quarter.