Filed under: Deals, Hewlett-Packard (HPQ), International Business Machines (IBM), Electronic Data Systems (EDS)
For the past year, Hewlett-Packard (NYSE: HPQ) posted revenues of $107 billion. So, to grow just 5%, the company will need to essentially create another Fortune 500 company.
That’s something HP’s CEO, Mark Hurd, definitely has mentioned on various occasions. Basically, how can a behemoth continue to grow?
Perhaps a smart strategy is to make large acquisitions?
Well, today HP has announced a hefty $13.9 billion buyout deal for EDS (NYSE: EDS), an information technology (IT) consulting operator. Over the past year, EDS posted about $22 billion in revenues.
But Hurd is not just concerned about the top-line. If anything, he’s highly disciplined with generating profits. In fact, since he has come on board HP (back in 2005), Hurd has been masterful in finding efficiencies - while still pushing revenue growth.
While the history of transformative M&A is filled with failures, with the HP-Compaq combination a prime example of what can go wrong, the strategic rationale for the EDS deal makes sense. In today’s global environment, customers want strong technologies but also sophisticated services. Actually, companies are increasingly outsourcing services to players like EDS.
Moreover, with much more heft, HP and EDS will become a formidable alternative to IBM (NYSE: IBM), which has proven the technology/services model.
Finally, I’m sure that Hurd will take out his cost-cutting knife. It’s something that hasn’t been emphasized but I’m sure it will be a huge part of the deal.
Tom Taulli is the author of various books, including The Complete M&A Handbook
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