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Xerox to Buy Business Process Outsourcing Solution Provider ACS

Sunday, September 11, 2009


Xerox (NYSE:XRX) revealed this morning that it will buy business process outsourcing solution provider Affiliated Computer (NYSE:ACS) Services to create a $22 billion global enterprise for document technology and business process management. The deal is initially value at $6.4 billion, and it is the largest acquisition Xerox has ever made.

In a Webcast, Xerox CEO Ursula Burns stressed the synergies between Xerox and ACS, calling the solution provider a “leader” in the document management space. In forming the $22 billion potential powerhouse, $17 billion will be in recurring revenue or services, “a significant boost to our profitable annuity stream,” she said. The revenue Xerox generates from services will triple from $3.5 billion in 2008 to an estimated $10 billion in 2010.

ACS (VAR 500 rank 23) will operate as an independent organization and initially will be branded ACS, a Xerox Company. Lynn Blodgett, current president and CEO of ACS, will head the organization; he will report to Ursula Burns.

Blodgett recalled ACS’ founding in 1988 as a bank data processor and how it has evolved to become a top-tier player in BPO. “Our recurring revenue model has allowed us to generate healthy growth. The growth potential with this deal will generate solid returns and provide employees the opportunities to expand their expertise,” he said.

“Eighty percent of ACS revenue is in BPO [roughly $5 billion], and it’s all image-intensive — documents, images. We have video data, too all of that can be made more efficient through technology Xerox brings to us.”

While ACS has strong business relationships in the U.S., its presence in Europe and Asia is comparatively weak. Xerox’s brand, innovative technology and infrastructure globally will bolster ACS’ position and provide Xerox with a broader BPO offering, putting the company in direct competition with the likes of Cognizant.

The deal will be a cash and stock transaction valued at $63.11 per share, or $6.4 billion, as of the closing price of Xerox stock on Sept. 25. Larry Zimmerman, vice chairman and CFO of Xerox, said the combined companies expect to see annualized pretax cost “synergies” of $300 million to $400 million in the next three years. The deal should be completed by the first quarter of 2010.

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