Xerox, “the data company,” announced today it plans to acquire Affiliated Computer Services; a move which will firmly place them in the $150 billion business process outsourcing market. This cash and stock transaction was originally valued at $6.4 billion based on Friday’s closing Xerox stock prices, but has since dwindled to $5.5 billion due to a 14% decrease.
The steep decrease in stock stems not from a lack of faith in Xerox and their current capabilities, but rather from concerns regarding the strategic overlap of the two companies. Deals such as the recent Dell acquisition of Perot Systems and last years purchase of EDS by HP were much less radical as the initial products had far more overlap.
Xerox however, thinks otherwise. “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 Xerox CEO Ursula Burns. “Xerox becomes a $22 billion global company, of which $17 billion is recurring revenue – a significant boost to our profitable annuity stream. The revenue we generate from services will triple from $3.5 billion in 2008 to an estimated $10 billion next year.”
Given the aforementioned deals by competitors HP and Dell, it makes sense why Xerox felt the need to make a move. However, with the lack of apparent overlap in the two companies products, it remains to be seen if this was in fact a wise move by Xerox.
The deal between the two companies is expected to close in the first quarter of 2010.