Perot Systems Corp

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PEROT SYSTEMS CORP.

Perot Systems Corp. is a technology services and consulting firm based in Dallas, Texas. The company offers systems management, systems integration, customer relationship management, and e-commerce services to its enterprise clients, most of which operate in the financial services, healthcare, and manufacturing industries. Sales in 2000 exceeded $1 billion, and employees totaled roughly 7,500.

Texas billionaire Ross Perot founded Perot Systems in 1988 to compete with Electronic Data Systems Corp. (EDS), the computer services firm he founded in 1962 and eventually sold to General Motors Corp. for $2.8 billion. At the time, that price was more than had ever been paid for a computer services company. When General Motors took control of EDS in June of 1984, Perot was named to the General Motors board of directors. Several bitter disputes over the direction of EDS eventually prompted Perot to resign his post and establish his second technology services business.

Perot Systems remained a relatively small player in the late 1980s and early 1990s. In 1992, after he decided to run for the presidency of the United States, Perot recruited Morton H. Meyerson, who had served as EDS' president and CEO from 1979 to 1985, to take the helm at Perot Systems. Meyerson had been ranked as "The Best CEO in the Computer Services Industry," by the Wall Street Transcript for three consecutive years in the early 1980s. It was under Meyerson's leadership that Perot Systems forged its 25-year agreement with Swiss Bank Corp. in 1995. The contract eventually accounted for nearly 25 percent of Perot Systems' total revenues. According to the terms of the deal, estimated to be worth $250 million each year, Perot oversaw the network maintenance and software installation of the information technology (IT) operations of Swiss Bank's investment banking arm, SBC Warburg. Due in part to the new contract, sales in 1996 neared the $600 million mark, compared to $342 million in 1995. Earnings also grew nearly twofold, reaching $20 million.

In the mid-1990s, Perot Services expanded its product and service offerings by acquiring several software and consulting businesses. In July of 1996, SportsTrac Inc. hired Perot Systems to develop an Internet database of high school athletes that could be used by college recruiters. The firm also diversified its new management team, hiring James A. Cannavino, a former IBM Corp. executive, and James A. Champy, a consultant who played an integral role in the reengineering trend that had swept through the business world in the mid-1990s. Cannavino replaced Meyerson as CEO in September of 1996. According to a November 1996 article in BusinessWeek Online, Cannavino spent his first few months at the helm "zeroing in on key industries, such as financial services, health care, and energy, and developing functional expertise in areas that cross industry boundaries, such as logistics management. At the same time, Cannavino has made sure that Perot is up to speed in all the new software technologies, including those used for the Internet and intranet setups. Perot is now investing in software startups to get new technology early." For example, the firm paid $9 million for the assets of Nets Inc., a business-to-business (B2B) e-commerce system developer that had run out of money, in May of 1997.

Two months later, Cannavino made the sudden decision to resign as president and CEO after less than one year at the helm. Perot himself stepped in as interim CEO. When Meyerson resigned as chairman in January of 1998, Perot took over that role as well. He put in place several cost cutting measures that allowed the firm to boost profits from a tenuous $11.2 million in 1997 to $40.5 million in 1998. The firm completed its initial public offering (IPO) in February of 1999, initially listing its shares for $16 apiece. By then, Perot Systems was using the technology and expertise it had acquired when it purchased Nets Inc. to build B2B exchanges on the Internet for clients such as industrial supply distributor W.W. Grainger. Like most other IT service firms, Perot Systems saw its share price soar to a high of $85 shortly after its IPO before plummeting to roughly $20 per share later in the year.

Perot Systems purchased Health Systems Design Corp. in 2000, gaining access to Diamond, a health-care payment software application. Sales that year exceeded $1 billion for the first time. A 2001 reorganization refocused the firm on three core industries: financial services, healthcare, and manufacturing. Operations in other industries were grouped together in an emerging industries unit. Perot Systems also condensed its services into three main groupings: business consulting, software engineering and integration, and technology infrastructure services. As part of the overhaul, the firm laid off 200 employees, roughly 2.5 percent of its workforce, and took a $48 million charge.

New product releases that year included iQom, an Internet-based application that helps organizations reduce their energy costs by monitoring, collecting, and analyzing information regarding the use and management of things like electricity. Wyndham Hotels & Resorts hired Perot Systems to use iQom for a five-year period. In May, La Quinta Inns Inc. contracted Perot Systems to improve its central reservations, financial management, sales management, and e-mail systems. The firm also secured a 10-year contract, worth an estimated $600 million, from Catholic Healthcare West to streamline its information systems. In addition, Burger King Corp., the second-largest fast food chain in the world, outsourced its global network management, enterprise systems management, data center management, and help desk support to Perot Systems. Acquisitions that year included Covation, a software services provider for the health-care industry, and Advanced Receivables Strategy Inc., a provider of hospital revenue management services and technology.