There are a lot of reasons why Dell Inc. agreed to buy Perot Systems Corp. for $3.9 billion, but Congress' vote earlier this year to appropriate billions of dollars to spread the use of electronic medical records may be a key one.
Perot, which says that about half of its $2.8 billion in annual revenue is derived from health care projects, is in a good position to gain a significant chunk of the $36 billion the federal government is poised to spend on IT related health care projects. Even before today's announcment that Dell plans to buy Perot, the PC maker and IT services firm had agreements in place develop platforms dedicated to electronic health care applications.
During a conference call with reporters today, Michael Dell, CEO and chairman of Dell, called the move "the right acquisition" for his company, and that the two Texas-based firms share several similar characteristics. "Our products, services and structures are overwhelmingly complementary," Dell said.
Ross Perot, the chairman emeritus of Perot, added, "We saw this as a cultural match, and we saw what we could do together, and I think that made it a lot easier to jump on Michael's vision to build Dell."
Perot founded Electronic Data Systems (EDS) in 1962 and sold it to General Motors Corp. in 1984 for $2.5 billion. EDS was spun off in 1996 as an independent firm and remained that way until it was acquired last year by Hewlett-Packard Co. for $13,9 billion. Ross Perot founded Perot Systems in 1988.
Harry Greenspun, chief medical officer for Perot Systems' health care group, told investors garthered at an industry conference this month that there's tremendous opportunity for companies like Perot in the health care market. "Most hospitals, most physicians' offices are very immature in their adoption in their technology," he said, according to an archived recording on Perot's web site.
Dell hopes to complete the deal by year's end, just after the federal fiscal year starts on Oct. 1, which is when federal spending on electronic records is set to begin in earnest. The demand for help in implementing new health care IT projects should come quickly -- Under the law, health care providers have to start upgrading e-health systems by 2015 or face federal penalties.
Dell and Perot are already jointly offering what Greenspan called a "dumb box" without ports or disk drives. The software-as-a-service (SaaS) system delivers electronic records to virtual desktops that charge customers on a subscription basis. "This is a different way of delivering this service," said Greenspun.
The purchase of Perot Systems will also give Dell some credibility among large users as a service provider, said Peter Bendor-Samuel, CEO of outsourcing consultancy Everest Group. "It both significantly improves their delivery capability and tremendously improves their credibility," he said.
Bendor-Samuel said improved revenue from health care projects should be a strong side effect of the merger, but contended that Dell's primary interest is gaining access to a broader base of enterprise customers. "It's great to be a dominant player in the fastest growing segment of the economy, but I view that as a nice thing to have," he said.
Dane Anderson, an analyst at Gartner Inc., believes that the deal shows only that Dell is finally embarking on a services strategy. Dell's support operation has traditionally focused on providing services to meet the needs of existing users. It has not offered the broader consulting and integration services provided by IT services firms like Perot Systems, he added..
"Really, where the opportunity is in the nearest term is to bring more capabilities to the table for that Dell installed based of clients," he said.
Anderson said that he doesn't expect Dell to quickly gain new services contracts due to the acquisition of Perot. Enterprise aren't likely to exit existing contracts with other services providers.