Editor’s note: NTT DATA recently announced plans to acquire Dell Services for more than $3 billion, expanding its U.S.-based footprint. What are the factors driving the deal? Technology Business Research analyst Kevin Collupy takes a look.

HAMPTON, N.H. – The $3B-plus divestiture of Dell Services to NTT DATA would propel the combined entity to a top 5 IT service vendor in revenue size

NTT DATA, a division of Japan-based conglomerate Nippon Telegraph & Telephone Corp., announced plans to acquire the IT services arm of Dell. NTT DATA plans to close the deal by late summer and will buy Dell Services for a reported $3.055 billion.

Dell Services (excluding support and maintenance) CY15 revenues were $2.84 billion, added to NTT DATA’s approximately $13.4 billion during the same time period would place the combined entity near the top five in terms of TTM revenue size in TBR’s 4Q15 IT Services Vendor Benchmark. We believe NTT DATA will welcome having additional clients and exposure in the North American IT services market, while Dell will gain much-needed liquidity and reduce corporate complexities ahead of its own large-scale acquisition.

Leveraging both Dell and NTT clients for cross-selling opportunities will fuel revenue growth for the proposed acquisition

In recent months Dell allegedly has been raising capital for its planned $67 billion dollar acquisition of EMC. We believe Dell will continue to divest noncore assets from its security and software businesses, such as Quest and SonicWall, to help fund the EMC deal. NTT’s acquisition of Dell Services was timed right as the company will gain U.S.-based revenues and clients, business outsource processing (BPO) capabilities and additional offshore headcount at a discount price.

The two companies have little overlap and few joint clients, so we do not expect a massive headcount restructuring or rationalization announcement ahead of the acquisition. Instead of cuts, we believe NTT DATA will leverage Dell Services’ existing client base to fuel revenue growth and expand its global exposure. We expect NTT DATA to quickly integrate and upsell and cross-sell the combined entity’s new BPO capabilities to its own clients. Likewise for Dell Services’ existing customers, NTT will cross-sell and upsell NTT DATA’s system implementation capabilities including Oracle, SAP and Salesforce app management and integration capabilities.

From a geographic viewpoint, Dell Services business adds significant revenues from U.S.-based healthcare and public sector clients to NTT DATA. This follows a recent trend similar to European-based Capgemini and Atos that inorganically invested to win market share in North America with billion-dollar- plus acquisitions of iGate and Xerox’s ITO business, respectively. Dell Services will add 28,000 employees to NTT DATA’s more than 80,000 global workforce. Dell Services’ low-cost footprint will add more than 13,000 India-based employees, expanding the scale of low-cost delivery capabilities.

The future for Dell’s service offerings after the sale will heavily rely on close-to-the-box competencies

Dell Services, which is largely comprised of Perot Systems that was acquired in 2009 for $3.9 billion, was meant to be a foundational piece to Dell’s overall services approach. We believe Perot Systems and its core strengths in healthcare and public sector were initially planned to have supplementary pieces added to Dell Services’ portfolio, but industry transformation, hardware commoditization and expenses associated with going private prohibited large investments into the unit.

Now Dell will be left with mostly close-to-the-box services around break-fix and support and maintenance, which comprised nearly $5 billion of revenue in 2015, and these services are more akin to Dell’s overall hardware strengths and market perception. In addition, EMC will add back what Dell may lose such as cloud, application and IT consulting services.

NTT DATA will likely focus on constructing a cohesive go-to-market plan with the organizational expansion over the next year. Benefits to customers will be a simplified and streamlined organization. Integrating the acquired services assets under one umbrella and expanding capabilities in outsourcing will offer more value from a single-source IT services supplier. This enables the company to move forward with its client-first mentality, offering one point of contact for all IT services needs to its direct clients and offering a more unified message to its robust channel partner network.