Computer Behemoth Dell has announced that it has acquired IT Services provider Perot Systems for $3.9 billion in what is a bold statement by the Texan maker.
Perot Systems shareholders have been paid a premium price 67 percent higher than at close on Friday afternoon which some, including Chris Kaufman from Reuters and Shannon Cross of Cross Research, consider as quite expensive.
Dell shares fell by more than five percent since the news was announced, wiping around $1.5 billion off the market capitalisation value of the company in a few hours.
But then, there are a few reasons why Perot systems is worth the cash stomped. It makes a significant amount of money - 50 percent of its revenue - out of the health sector, a segment that is likely to grow tremendously over the next few years.
More specifically, it is one of the very few companies that can bid for the Obama administration plan which will have a $20 billion budget and this is only for the US market; Perot Systems is largely unknown overseas.
Furthermore, there aren't many other technology firms that can be acquired as Dell wants to fuel its growth with high margin IT services, which are less prone to cycles.
Still Dell currently has only around $6 billion worth of cash left and Perot Systems has been the company's biggest acquisition ever, dwarfing the $1.4 billion it paid for Equallogic last year.
Services have helped HP and IBM largely weather the recession thanks to a good combination of hardware, software and services. Dell has become the latest of the top tier computer manufacturers to buy into the IT services segment. Last year, HP purchased EDS, the then-second largest computer services for a whopping $13.2 billion.