Dell (DELL) plans to buy Perot Systems (PER) for about $3.9 billion (£2.4 billion), paying a steep 67.5% premium to expand its technology services business and compete with Hewlett-Packard (HPQ) and IBM. The deal is expected to close in Dell's November to January fiscal quarter. Since the deal announcement, Perot shares jumped 65% to close at $29.56 while Dell shares fell 4.1% to $16.01. Why are the investors worried about the deal?

The deal makes strategic sense

Dell lags far behind HP and IBM in the services arena. In recent years, IBM has been focusing on high margins solutions business, while HP has been expanding its technology services business through the $13.9 billion acquisition of EDS in 2008. In contrast, Dell's revenue came more from hardware related businesses. Dell's future lies in moving from the desktop, to the data center, to the cloud, and into the hands of billions of potential new customers who are carrying the Internet essentially the world with them everywhere they go. Increasingly IT revenues will come more from healthcare and federal government customers.

Perot Systems specializes in providing business processes and technology consulting services, with more than a third of its 23,000 employees based in India. It estimates that it is the largest provider of IT services to hospitals, operating in roughly 1,000 around the world. Half its sales are from the healthcare sector, and a quarter in government services. Dell expects the acquisition to add to earnings in fiscal 2012. In 2008, Perot's healthcare group earned the number one ranking in the prestigious "Best in KLAS Top 20 Awards" in the category of Clinical Implementation. In 2008, Perot's relationship with Harvard Pilgrim Health Care was judged the "Best Partnership" in the Outsourcing Excellence Awards sponsored by the Everest Group and Forbes. Moreover, Perot's revenue performance has been steady notching up a 10% CAGR during 2006-2008.

So by acquiring Perot Systems, Dell removes its two weak spots (lack of services revenue and low healthcare and federal government customer base). Additionally, the acquisition may open the door to the sale of Dell PCs to Perot's clients.

Now, the crucial question – was the price right?

Dell said on Monday it would pay $30 per share for Perot Systems, whose Friday's closing price was $17.91. The price is 1.4 times Perot Systems' sales ($2,779 million in FY2008), compared with HP's purchase of EDS for 0.6 times sales last year. So, relatively the price is dear. However, if Perot is smoothly integrated into Dell and cost synergies and revenue expansion opportunities do materialize as assumed by Dell then the price may turnout to be right.

How will the deal impact Dell's financial position?

Dell has $12 billion in cash and short-term investments – so it can afford to make even bigger purchases. With cash earning lower returns in banks, CDs and other financial instruments, I believe, the acquisition should actually make money work better for Dell.

So how good is the integration likely to be?

Since 1999, Dell has made 11 acquisitions while taking stakes in 5 companies. Dell Inc. has also divested three companies during this period. So, the company's acquisition integration track record seems to suggest strong capabilities. However, the acquisition of Perot Systems is going to be a challenging task. Since 1996, Perot Systems has made 21 acquisitions while taking stakes in 3 companies – so the integration of Perot Systems into Dell is going to be a bigger challenge like never before.