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Xerox to Acquire ACS- Affiliated Computer Services for $6.4 Billion

By Amarendra Bhushan for CEOWORLD Magazine Updated:September 28, 2009

Xerox Corp (XRX.N) will buy Affiliated Computer Services Inc (ACS.N) for $6.4 billion in a cash and stock deal that expands the copier company into technology outsourcing and data management.

This acquisition will transform Xerox into the leading global enterprise for document and business process management, and will accelerate its growth in an expanding market.

The world’s largest diversified business process outsourcing : (BPO) firm, ACS is a $6.5 billion company with revenue growth of 6 percent and new business signings of $1 billion in annual recurring revenue during its fiscal 2009.

ACS’s expertise is in managing paper-based work processes and providing specialized BPO and information technology services for industries that range from telecommunications, retail and financial services to healthcare, education and transportation. Business process outsourcing is estimated to be a $150 billion market, growing at a rate of 5 percent per year. Through its multi-year contracts with more than 1,700 federal, state, county and local governments, ACS is the largest provider of managed services to government entities in the United States.

As per the terms of the deal, ACS shareholders will receive a total of $18.60 per share in cash plus 4.935 Xerox shares for each ACS share they own. In addition, Xerox will assume ACS’s debt of $2 billion and issue $300 million of convertible preferred stock to ACS’s Class B shareholder. On an adjusted earnings basis, the transaction is expected to be accretive in the first year.

Xerox expects to achieve annualized cost synergies that will increase to the range of $300 million to $400 million in the first three years following the close of the transaction.

With this acquisition, Xerox is confident it will achieve significant incremental revenue growth by leveraging Xerox’s strong global brand and established client relationships to scale ACS’s business in Europe, Asia and South America. In addition, Xerox will integrate its intellectual property with ACS’s services to create new solutions for end-to-end support of customers’ work processes.

Xerox expects to achieve annualized cost synergies that will increase to the range of $300 million to $400 million in the first three years following the close of the transaction. The synergies are primarily based on expense reductions related to public company costs, procurement and using ACS’s expertise in back-office operations to handle some of Xerox’s internal functions.

The transaction, which has been approved by the Xerox and ACS boards of directors and ACS special committee, is expected to close in the first quarter of 2010. ACS will operate as an independent organization and initially will be branded ACS, a Xerox Company. It will be led by Lynn Blodgett, who will report to Ursula Burns.

The acquisition is subject to customary closing conditions, including the receipt of domestic and foreign regulatory approvals and the approval of ACS and Xerox stockholders.

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Tagged with: ACS, Document Management, Enterprise Software, Finance, Groupware, Hardware Infrastructure, Hewlett-Packard, Infrastructure..., IT Management, Managerial Accounting, Operational Accounting, Operational Planning, Printers, Software, Xerox Corp.

Emmanuel

The news of IT/BPO acquisitions tell me that the good ol times may be round the corner. We had seen this kind of big ticket game changing acquisitions prior to the recession in 2008. While it may be too early, IT/BPO service providers are already honing their skills, ready to address the opportunity that the upturn will throw up.

The starting of the year saw a huge acquisition happening. Tech Mahindra snapped up IT giant Satyam Computers in a deal that many thought would fall through. But looking at the way things are going, Mahindra Satyam is currently doing well, and this can be gauged by the speed at which the company is adding new clients. Recently I read an interview of Mahindra Satyam BPO’s CEO in Shared Services Outsourcing Network website. The CEO seems to be pretty upbeat about the acquisition and is sharing details of the synergy between Tech Mahindra and Mahindra Satyam. You can read the interview at http://www.ssonetwork.com/topic_detail.aspx?id=...

I am sure the combination of Tech Mahindra and Mahindra Satyam will be unchallengeable in the near future.