Expanding into New Markets Through M&A can be Tougher than Expected

With the proposed acquisition of Perot Systems by Dell in order to expand beyond the PC market, one needs to step back and examine the road ahead for this transaction. On the surface, this looks to be a strong strategic move by Dell- both companies have an excellent track record and product set, both are considered leaders in the hi-tech world, and both come with top quality leadership. But go a step further. Perot Systems is a service model, while Dell is a hardware/manufacturing model (with a call center). Combine the two companies and strategic questions arise. What client base will the new company be catering to? Some of Perot’s client base will overlap with Dell. Will Dell continue down the acquisition road and buy the hardware and software companies Perot supports, or they taking a step to becoming the next IBM? These are two large companies with excellent management, what personnel does Dell expect to retain in the combination?  Lose too many leaders and the client base will shrink.  With the size of the two companies, corporate culture needs to be examined.  If they are not compatible, the attrition will most certainly be higher than expected.

 

Strategic acquisitions can be very successful; however, only 20% ever meet return expectations. Expanding markets and product lines are the most common acquisitions, but step too far out of your comfort zone or buy a large company set in their ways and the result could end below expectations. Because this acquisition has both big size and outside comfort zone, Dell needs to careful with the integration. This looks very similar to other large acquisitions, i.e. HP and Compact, so Dell does have the recipe of what not to do.