Xerox has agreed to buy business process outsourcer Affiliated Computer Services (ACS) for US$6.4 billion, in a move it hopes will allow it to expand beyond the field of document management.
Ursula M. Burns, Xerox chief executive officer 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.
“A game-changer for Xerox, acquiring ACS helps us expand our business and benefit from stronger revenue and earnings growth.”
Once the merger is complete Xerox expects its services income to triple from $3.5 billion in 2008 to an estimated $10 billion in 2010.
The announcement follows last week's deal between Dell and Perot Systems, with the hardware supplier offering $3.9 billion for the Texas-based outsourcer.
Dell, like HP, which acquired outsourcing giant EDS in May 2008, struggled to build a services organisation of its own that could compete with industry leaders such as IBM Global Services, Accenture and others. Last week the EDS brand name was subsumed into that of HP.
The Xerox-ACS deal could increase the pressure on other independents, including CSC, Unisys and Indian companies such as Wipro and Infosys Technologies, to find a suitor.
Around the world, ACS's 74,000 employees work in finance, human resources, IT support, and customer care. For the year to June 30, ACS reported revenue of $6.52 billion, up 6 percent on the previous year. Around 40 percent of that came from government customers, making ACS one of the largest providers of managed services to U.S. government bodies.
Xerox's 54,000 staff work on document management technologies and services, as well as on the company's historic photocopier business. The company reported a 2.2 percent year-on-year rise in revenue for its 2008 fiscal year, to $17.61 billion, of which 26.6 percent came from equipment sales.
As a subsidiary of Xerox, ACS will operate as an independent business run by its current CEO, Lynn Blodgett.
The offer price of $6.4 billion is a little above the $6 billion proposed by ACS founder Darwin Deason when he offered to take the company private in March 2007.
Xerox will pay about 30 percent of the purchase price in cash, and the rest in stock, based on its closing share price Friday. It expects the deal to close in the first quarter of next year, subject to approval from regulatory authorities and the companies' stockholders.