| | 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 properly
integrate or position | |
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| | 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
companies there's only a | |
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| | 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 going to
preserve EDS as a
separate unit and | |
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| | 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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| | 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
tempo. It's a bit like | |
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