With EMC acqusition, Dell poised to make its mark in changing IT market

Dell Inc.’s $67 billion purchase of data storage company EMC Corp. signals its desire to make a bigger splash in an ever-changing technology industry, but its impact in the federal space might be limited.

Resellers currently handle many transactions of Dell products to federal agencies,  said Jean Stack, managing director of Houlihan Lokey. And if Dell is looking to make a bigger mark in the federal services market, it has a long way to go.

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Dell Inc.’s $67 billion purchase of data storage company EMC Corp. signals its desire to make a bigger splash in an ever-changing technology industry, but its impact in the federal space might be limited.

Resellers currently handle many transactions of Dell products to federal agencies,  said Jean Stack, managing director of Houlihan Lokey. And if Dell is looking to make a bigger mark in the federal services market, it has a long way to go.

Both Dell and EMC said they’re experiencing a broader shift in the technology market, as industry pivots its focus on personal computers to IT services — such as cybersecurity, cloud and data storage.

“It’s going through a tremendous transformation,” EMC chairman and CEO Joe Tucci said during a call with reporters and industry analysts on Oct. 12. “In this transformation, there’ s a very disruptive side, where the older style of IT is being pretty quickly disrupted, yet it’s incredibly rich with opportunities, and there’s still more opportunity for IT solutions now.”

The merger surpasses the $37 billion deal between Avago Technologies and Broadcam. It also positions Dell to be a major player in the enterprise services market.

“The combination of Dell and EMC creates an enterprise solutions powerhouse bringing our customers industry leading innovation across their entire technology environment,” Michael Dell, founder and CEO of Dell, MSD Partners and Silver Lake, said in a statement. “Our new company will be exceptionally well-positioned for growth in most strategic areas of next generation IT, including digital transformation, software-defined data center, converged infrastructure, hybrid cloud, mobile and security.”

EMC Corporation earned roughly $132 million in federal prime contracts in fiscal 2014, with most contracts coming from the Defense Department, according to USASpending.gov. That total includes contracts won by RSA Security, VMWare, Isilon Systems and Iron Bow Technologies, which EMC either partners with or owns.  EMC’s total annual revenue is more than $19.5 billion in 2014, according to data on the government’s spending portal.

Dell Federal Systems earned about $503 million in federal prime contracts through about 8,000 transactions in fiscal 2014, according USASpending. Its annual revenue totaled about $65 billion that same year.

Dell will be the CEO of the combined company, while Tucci will stay in his position as EMC CEO until the deal closes.

VMWare, of which EMC owns a 80 percent stake, will remain a publicly-traded company.

The merger reflects a growing trend toward major consolidations and acquisitions in the federal space, which some investment banking experts predict will continue in 2016.

In July, Lockheed Martin announced plans to buy Sikorsky Aircraft, a Black Hawk helicopter contractor, for $9 billion. Engility finished a $1.3 billion deal with TASC back in February, and CSC is combining its government services division with SRA International to form a new company.

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