Xerox has announced a definitive agreement for Xerox to acquire Affiliated Computer Services (ACS) in a cash and stock transaction valued at $6,4-billion in a move that will transform Xerox into a 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% and new business signings of $1-billion in annual recurring revenue during its fiscal 2009.
"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," says Ursula Burns, Xerox CEO. "A game-changer for Xerox, acquiring ACS helps us expand our business and benefit from stronger revenue and earnings growth.
"Xerox becomes a $22-billion global company, of which $17-billion is recurring revenue – a significant boost to our profitable annuity stream," she adds. "The revenue we generate from services will triple from $3,5-billion in 2008 to an estimated $10-billion next year."
Lynn Blodgett, president and CEO of ACS, adds: "We're proud of our significant profitable growth over the past 20 years and our ability to manage our clients' operations with a global infrastructure and workforce.
"We also know that for ACS to expand globally and differentiate our offerings through technology, we need a partner with tremendous brand strength and leading innovation. Xerox offers that and more to bring our business to the next level while strengthening theirs."
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 US.
"When ACS was founded, we had a vision of becoming a best-in-class company by working harder than our competitors. More than 20 years and 74 000 employees later, as the world's top BPO company, we have now found a partner to help us reach even greater heights," says Darwin Deason, founder and chairman of ACS.
"This is a tremendous outcome for our shareholders driven by the commitment of a strong management team and incredibly dedicated employees. At closing, I will become one of the combined company's largest individual shareholders, and I intend to remain a long-term investor because I could not be more optimistic about the future of the combined company."
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 annualised 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.