INPUT Government Technology Market Blog

HP buys EDS for $13.9 billion; DRS to be acquired, Harris too?
Posted on: May 13, 2008 | Posted By: Ashlea Higgs
Related Categories: State & Local, Mergers & Acquisitions, Federal

A busy past few days for M&A announcements and rumors, with the biggest announcement today.

TIMELINE

  • Friday: rumors of Harris Corp. exploring a sale

  • Monday: Rumors of HP + EDS, plus Italy aerospace and defense firm Finmeccanica acquires DRS for $5.2 billion.

  • Today: HP buys EDS for $13.9 billion, officially announced. (A great deal at 0.5x revenue.)

    In the government market, HP leaps forward to become a top player in IT services, and now owns a channel once shared with its competition. EDS owns many of the huge MMIS state contracts. EDS did $2.4 billion in federal prime work in FY 2007, with almost 3/4 of that from the NMCI contract. The NMCI contract will be replaced by NGEN, estimated for a fall 2008 RFP release.

    COMPETITION

    The acquisition doubles HP's services revenue, and puts HP squarely up against IBM in services. Of HP's competitors Sun, Xerox and Dell, Forbes says Dell is the biggest loser. Why didn't Dell buy EDS?

    EDS' earlier take on its competition, now in need of revision:

  • Infrastructure services: IBM, CSC, Fujitsu, T-Systems, HP, and Accenture
  • Applications services: IBM, Accenture, CSC, HP, Infosys and Tata Consultancy Services.
  • BPO: Accenture, ACS, IBM Hewitt and Convergys.

    source: EDS' 2007 Annual report

    Who is next? Will HP, or someone else, go after for ACS?

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    More IT mergers will occur in 08, maybe some more big ones. Besides Harris what about SAIC--pure high-end services in intell, defense and civilian. No debt, cash on hand and growing. A near perfect buy for the big guys like NGIT and GD or equipment folks like CISCO.
    # Posted By JOE LEO | 5/13/08 7:29 PM
    Not sure why EDS didn't have Northrop Grumman on their list of key competitors? Certainly in infrastructure, potentially in applications, not yet in BPO ... but they should be on EDS's radar.

    Reason this is interesting is that EDS is a sub to Northrop Grumman on the San Diego County outsourcing deal (infrastructure & applications). Wonder if NG wants HP now working side-by-side with them? Wonder if NG will try to buy EDS's human services systems business? (Depending on how much HP wants to offset some of the acquisition cost, they might be in the mood to deal.)
    # Posted By TW | 5/20/08 5:22 PM
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