| | By Mick James
There's been a
curiously muted reaction
to HP's acquisition of
EDS. The main fall-out
so far has been from
investors, who responded
to the $13bn deal by
knocking $12bn off HP's
market cap. What's their
problem? HP has now
created a
laptops-to-outsourcing
IT and services behemoth
to rival IBM. Ah. I
see what they mean.
Despite constant talk
of imminent
consolidation in the
market, deals of this
sort are deeply
unfashionable. The trend
now seems to be much
more to acquire
intellectual property
than scale, turning a
small player's offerings
into global product
lines, with much
gratuitous use of the
word "leverage".
Big acquisitions of
this type have two major
problems. One is that
they provoke a long
period of internal
focus, trying to
surmount the inevitable
hurdles of integration.
It's an area where both
companies have bitter
experience. HP's merger
with Compaq in 2002 was
an even bigger deal and
highly controversial at
the time, even if it has
now bested Dell both in
sales and confusing
product lines. EDS'
protracted failure to | |
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| | tempo. It's a bit like
when you splash out on a
stunning new pair of
trousers and realise
that it only makes the
rest of your wardrobe
look inadequate – soon
it's time to get the
chequebook out again.
What could HP/EDS buy?
BearingPoint always
seems to be a favourite
for acquisition rumours,
so we might as well
start another one. But
when you've got the
chequebook marked
"billions" there are
quite a few firms out
there that might fit the
bill.
But that would be
another "Back to the
Future" moment and
another global
integration, recalling
not only EDS-AT Kearney
and IBM-PwC but
Capgemini-Ernst & Young.
It's not that these
things can't be done
well, but it's an added
element of risk and
hardly likely to provoke
anything but a further
mark-down of the share
price, at least in the
short-term. Again, these
sorts of moves are
desperately
unfashionable, the
smarter way to build out
an international
consulting network being
making highly selective
acquisitions,
supplemented by hiring.
But has HP the time or
the patience to do this?
Even in the biggest | |
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| | companies there's only a
certain amount of
managerial attention to
go around.
Which brings me to
another issue. HP's
acquisition of EDS is
clearly taken with an
eye on the major
outsourcing projects and
government work it
brings with it. One
commentator has
suggested that the move
will make HP the UK
government's biggest
supplier, and HP surely
won't have long to wait
to find out how much fun
that is. EDS has never
played in the little
leagues, and maintaining
that sort of pipeline
takes a lot of
attention. Let's hope
that HP doesn't take its
eye off the other end of
its portfolio: the
supply of infrastructure
and value-added services
to the smaller
enterprise. It's an area
where HP has been
happily slapping around
the competition for
years, but could easily
be threatened by a
resurgent Dell, Lenovo
or even Lexmark. That's
the problem with being a
dinosaur – while you're
trading blows with the
other behemoths, the
mammals come and steal
your eggs.
Of course, all these
problems can be
mitigated by keeping the
silos going, and it
looks as though HP is | |
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| | going to preserve EDS as
a separate unit and
sub-brand, at least for
the time being. From a
UK perspective this
looks like a mistake on
the branding level at
least, but may make more
sense in other
locations. But
experience suggests that
integration, if it is
going to happen, needs
to happen quickly. M&A
specialists will tell
you that after a fairly
short time integration
simply stops happening,
leaving all sorts of
undigested matter behind
(HP, for example, is
still rationalising the
product lines inherited
from companies like
Tandem and DEC that were
themselves originally
acquired by Compaq).
So there's a lot to
do, a lot of choices and
a lot of uncertainty. On
the plus side, if you
were going to pick any
company to take on a
task of this sort, HP
would probably top the
list. But there hasn't
exactly been the flood
of articles HP might
have hoped for,
declaring "with this
acquisition a major new
force emerges". That may
come in time, but at the
moment there's a
considerable amount of
risk to factor in – as
the market has already
done.
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| | properly integrate or
position consultancy AT
Kearney led in the end
to a sale back to its
partners, and left EDS
without even the
consulting capability it
started with. Which
brings me to my second
point – these sort of
major acquisitions are
incredible lumpy. While
they create huge
entities, they focus
more on the gaps in the
new setup than its
capabilities. There was
always a bit of a gap
between AT Kearney's
high-end operational and
strategic consultancy
and EDS' SI and
outsourcing capability,
which would have been
neatly filled by the
sort of applications and
process-focused
consultancy represented
by, for example, PwC's
consultancy arm. EDS
should have bought PwC.
So, in retrospect,
should HP, as it nearly
did in 2000.
Instead we have an
entity that will be
severely lacking in
high-end consultancy
grunt. EDS has been
steadily rebuilding its
capability and HP has
been pushing into
services, but they will
both need to step up the | |
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