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Dell executives have been saying they plan to sell off some assets as the company prepares to buy data storage giant EMC for an industry-record $67 billion. They took a significant step March 28, when NTT Data announced it was buying Dell’s IT services business for what reportedly is about $3.05 billion.
Officials with NTT Data, the services arm of NTT Group of Japan, said the deal will give the company greater access into the United States and other markets and make it a larger player in the global IT services space. It also will boost NTT Data’s capabilities in infrastructure services.
Dell had been looking to sell the services unit for several months, and NTT in recent weeks had been rumored to have been a leading contender. Dell Services customers also will benefit from gaining access to NTT Data’s vast services offerings, the officials said.
“There are few acquisition targets in our market that provide this type of unique opportunity to increase our competitiveness and the depth of our market offerings,” NTT Data CEO John McCain said in a statement. “Dell Services is a very well-run business and we believe its employee base, long-standing client relationships, and the mix of long term and project-based work will enhance our portfolio. We are confident this transaction will be positive for clients, employees, and shareholders.”
When Dell completes the deal for EMC and its various federated companies—officials expect it to close sometime between May and October—the company could take on $50 billion or more of debt. The tech vendor reportedly has been shopping several of its assets—including the Quest software and SonicWall security businesses—in hopes of raising money to lighten some of the debt burden.
Since Michael Dell returned as CEO in 2007, Dell has spent billions of dollars buying companies to build out its capabilities in such areas as storage, networking, services, software, security and the cloud. Company officials are transforming the vendor from a maker of PC boxes to a full enterprise IT solutions and services provider that can better compete with the likes of IBM and Hewlett Packard Enterprise. In a $25 billion buyout in 2013, Michael Dell took the company private in large part to help accelerate that transformation.
It’s worked to a large extent, though the company—the world’s third largest PC maker—still receives 65 percent of its revenues from its Client Solutions business, which primarily is PCs. The global PC market has been contracting since 2012 because of the rise of smartphones and tablets and a lack of excitement from consumers and business users around newer PCs. Dell officials hope the acquisition of EMC and its companies—including VMware, Pivotal, RSA and VirtuStream—will boost their enterprise IT efforts even more.
Dell’s IT services unit is based on the company’s $3.9 billion acquisition in 2009 of Perot Systems. Since going private, information into the finances of the company’s business units has been scarce. However, EMC officials earlier this month filed a lengthy document with the Securities and Exchange Commission (SEC) aimed at shareholders who are weeks away from voting on the Dell deal. In the document were financial details of Dell’s various businesses, which showed that Dell over the past couple of years has battled declining revenues and yearly losses, and over the past fiscal year saw revenue fall 6 percent due in large part to lower sales in the PC, software and services businesses.
According to the SEC document, Dell’s services business saw revenue fall 5 percent over the previous fiscal year, with declines across all Dell Services categories.
NTT Data officials expect the acquisition of Dell Services will be a boon for the company, not only by expanding the company’s presence in new regions but also bolstering its capabilities in business process outsourcing (BPO) in such areas as health care, financial services, insurance and the public sector. It also will add Dell Services data centers in the United States, UK and Australia to NTT’s lineup of 230 data centers worldwide.
The companies said the deal will be subject to customary regulatory approvals, but did not say when they expected it to close.