The second big industry acquisition in two weeks sees Xerox Corp (news, site) taking over Affiliated Computer Services (ACS) in a US$ 6.4 billion cash deal that will see the document management giant take on US$ 2 billion of ACS debt as part of the takeover.
According to statements issued on Monday, ACS shareholders will receive US$ 63.11 per share, with the combined company expected to create a US$ 22 billion global enterprise for document technology and business process management.
Two Weeks, Two Deals
The Xerox deal follows a move by Dell Inc to buy computer-services provider Perot Systems Corp. for almost US$ 4 billion, in what appears to be a trend amongst hardware providers to move into the business-process outsourcing (BPO) market.
However, this is no overnight phenomena and pales compared to the Hewlett-Packard buy-out of Electronic Data Systems Corp. for more than US$ 13 billion last year, making it the second largest computer-services company after IBM.
While these figures are genuinely mind-blowing, keep in mind that the BPO market is estimated to be worth somewhere in the region of US $150 billion annually with a predicted growth rate of 5% per year.
ACS And BPO
ACS provides information technology services to industries including telecommunications, retail, financial services and education and after the takeover it is expected to operate as a stand-alone firm.
And although no one is trying to estimate ACS’s share of that market at the moment, no one is disputing the fact that ACS is the largest provider of managed services to government with over 1,700 federal, state, county and local government contracts.
Ursula M. Burns, Xerox chief executive officer described the deal as a “game-changer for Xerox” that would “expand our business and benefit from stronger revenue and earnings growth".
The deal is also expected to save Xerox in the region of US$ 400 million over the first three years by using to ACS products to streamline its internal functions.
Analysts across the industry are welcoming the deal with many saying it will give Xerox a better foot in a wider market, and in particular in a market that is being dominated by Hewlett-Packard at the moment.
They are also saying that this is likely to be the wave of the next two years with Bloomberg newswire citing Moshe Katri of Cowen & Co in New York suggesting next targets might include Computer Sciences Corp., Accenture Ltd. and Hewitt Associates.
“What you are seeing is some of the product companies trying to replicate IBM’s model,” Katri said. “They have a successful services business that makes them a one-stop shop.”
Bloomberg also cites Jason Kupferberg, an analyst at UBS AG in New York as saying Accenture would give a buyer the world’s second-largest technology-consulting business. Accenture’s cost may be an impediment, though, he said. The company has a market value of US$ 27.8 billion.
In a hardware market that is under severe stress at the moment, all that remains to be seen is who will be the next to take the plunge into the BPO sector.