Xerox buys ACS; Makes its big services bet

Xerox buys ACS; Makes its big services bet

Summary: Updated: Xerox said Monday it will buy Affiliated Computer Services in a cash and stock deal valued at $6.4 billion.

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Updated: Xerox said Monday it will buy Affiliated Computer Services in a cash and stock deal valued at $6.4 billion. The move is a big bet to transform Xerox into a services company that does everything from collecting tolls and installing government systems to retooling business processes and information technology outsourcing.

Xerox is valuing ACS at $63.11 a share, up from ACS' closing price of $47.50. The transforms Xerox into a services company that can focus on business process management and outsourcing (statement, Techmeme).

The company, which is in a dogfight with HP for print managed services, is apparently looking for more foot soldiers to cross sell everything from process overhauls to document management programs. After all, HP can use its EDS army to sell print managed services in addition to other items. ACS had $1 billion in recurring revenue during fiscal 2009.

For Ursula Burns, Xerox CEO, the ACS deal is a defining moment that comes early in her tenure. In a statement, she said:

By combining Xerox’s strengths in document technology with ACS’s expertise in managing and automating work processes, we’re creating a new class of solution provider.

Indeed, Xerox will have a $22 billion company with $17 billion in recurring revenue. When you combine the Xerox deal with Dell's purchase of Perot Systems last week you arrive at an easy conclusion: Everyone wants to be a services company.

For ACS, the Xerox deal is another trip to the altar. Cerberus Capital Management announced a plan to pay $6.2 billion for ACS two year ago,  but the private equity firm later pulled its offer.

J.P. Morgan analyst Tien-tsin Huang recaps the ACS recent history:

In November 2005, ACS received a proposal from a private equity firm to be acquired for $62/share according to a SC TO-I filed by ACS on Feb 9, 2006, but talks broke down because ACS would not proceed for less than $65/share and talks eventually ended in January 2006. Later, on Feb 9, 2006, ACS took a different path and announced a Dutch auction tender offer of up to 55.5m shares at a range of $56-$63, which was undersubscribed with 7.36m shares tendered at $63 or 6% of Class A shares in March 2006. In June 2006, ACS announced $1B repurchase program. In March 2007, Cerberus and offered $59.25 to acquire ACS, which was later raised to $62, and eventually withdrawn on October 2007.

Chances are that ACS shareholders will happily take the Xerox deal. ACS shareholders get $18.60 in cash and 4.935 Xerox shares for each share they own. Xerox picks up ACS' $2 billion debt. As for the synergies, Xerox said the deal is about growth:

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.

However, there will be some savings. Xerox said it will save $300 million to $400 million annually in the first three years once the deal closes. The savings are related to back office, procurement and the costs related to running a public company.

A few things to note about the companies:

  • Xerox and ACS have 20 percent customer overlap to leave multiple cross selling opportunities. Here's the combined revenue pie.

  • Executives said the lines between business process and document management are blurring.

  • Here's how the synergies break down:

  • ACS taps into multiple commercial and government accounts.

Topics: Banking, CXO, Collaboration, Data Management, Enterprise Software, Software

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14 comments
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  • ASCII/xerox alliance

    ASCII group the worlds oldest group of solution providers has teamed with
    xerox in print managed services in the smb space
    aw@...
  • RE: Xerox buys ACS; Makes its big services bet

    I work for ACS. I was a bit surprised to get this news this morning.
    ibeapunker
    • Welcome to the club.

      This totally took me by surprise this morning. I was just rehired after a layoff. Now I can expect to likely lose my job again, especially considering my position revolves around document management. I expect they will see fit to eliminate my group. A big day for Xerox, maybe. Not for us.
      jgmsys@...
      • Surprise yes - but hopefully a good one

        I was laid off from ACS about a year ago... so
        just out of curiosity, what was the process by
        which you got rehired after your layoff?
        atul@...
  • What Makes This Deal Different

    Larry ? It?s a big day for us at Xerox. When you bring together two companies to create the world?s leading company for document and business process management?that?s really big. And you?re right, there?s been a lot of movement on the services front, but what makes our move different from HP/EDS or Dell/Perot Systems is that Xerox is already a first class services organization, with a decade under our belt. These other firms are focused on servicing the hardware and IT infrastructure needs of enterprises and institutions. Instead, our combined companies will focus on the information needs of the business process ?the data, documents and transactional touch points ? to solve business problems. At the end of the day this transaction creates a single provider for enterprises and governments to do the three things that matter most: reduce costs, improve processes; and manage information more efficiently.


    Paul Hartley, Corporate Business Strategy at Xerox

    P. Hartley
  • RE: Xerox buys ACS; Makes its big services bet

    Xerox has a history of making missteps outside of their core business. I hope this is not the case this time. ACS is a good company and Xerox has been an excellent company in the past. This seems to be a smarter move than previous ones, ie the entre' into the insurance business that proved costly for Xerox and the failed attempt to become a player in the computer hardware market.
    robert patrick
  • RE: Xerox buys ACS; Makes its big services bet

    Xerox has an incredible tendency to DESTROY PARTNERS and ASSOCIATES. I know that by experience for more than 20 years.
    lmss49@...
  • RE: Xerox buys ACS; Makes its big services bet

    Xerox has an incredible tendency to DESTROY Systems Technologies are an EVIL SPIRIT for Xerox people. They do not UNDERSTAND the subject.
    lmss49@...
    • Xerox has no Competence for

      They TRY (very hard I should say), BUT NEVER CATCH UP THE COMPETENCE. We must remember that Xerox HAD IN HANDS Windows, Mouse, Graphic User Interface, Documentum, Scanning Technology, Textbridge, Liveboard, Fax technology, STAR Workstation,
      lmss49@...
  • Xerox has no Competence for...

    Xerox LOST all the High technology opportunities. They bougth in 1997 a Network Systems Maintenance Company. Where is that team now.... Dissolved.
    lmss49@...
  • RE: Xerox buys ACS; Makes its big services bet

    Virtually every BPO service which ACS provides is heavily dependent on document management. At least some divisions of ACS (including the one in which I am employed) have traditionally used non-Xerox products for their document services. When Xerox says they see an opportunity to sell into ACS' customer base it will be all gravy from the deal. I would suspect that neither HP nor Dell automatically got so many sales, since most of the clients EDS and Perot have would already have some HP and Dell equipment.
    gardoglee
  • Corporations and Change

    I was just outsourced to ACS from Novell IT. Problem is people hate change and uncertainty, in a world that has turned upside down in the last year. Problem is, how do you get loyalty and passion from an employee in this environment? Management really need to wake up and ask themselves how much productivity will they lose and will employees really work for the success of the business or just garner a wage....
    lmbconsulting
  • Reputable Xerox buys body shop: Where's Up-Side?

    So, reputable, creative Xerox wants to buy a body shop.
    Where's the up-side?
    How will it improve the industry?
    How will it improve the affected professions?

    The most likely result is that Xerox will be pulled down into the
    corrupt sewer.
    Professor8
  • RE: Xerox buys ACS; Makes its big services bet

    jeyfdn,good post!
    dsfwrryd88-24353648351994798997222005474665