The ACS-Xerox deal: was it a smart move?

Since the news became public on Monday, hundreds of media, analysts and bloggers have had much to say about Xerox’s intent to acquire ACS. With all of the insightful banter, candid commentary and strong opinions being shared – both good and bad – I figured it was time to officially join the conversation.

From my perspective, there is only one question that everyone is trying to answer: Was it a smart move? For those of you that answered “yes” to that question, you can stop reading now. I’m going to spend the rest of this post trying to convince the skeptics.

Document management and beyond: through the ACS acquisition, we are hitting the “sweet spot” of fulfilling our vision of owning all aspects of document management, while preparing for tomorrow’s growth. In a maturing enterprise technology market, customers increasingly want to outsource the purchase and management of complicated systems, and to offload administrative tasks. By purchasing ACS, we can handle more for our customers.

We will be able to provide customers with a global delivery network, significantly scale our Business Process Outsourcing capabilities and differentiate Xerox in the marketplace. Please remember, we are primarily going after the BPO space, that layer where real business is getting done.

As the Wall Street Journal rightly pointed out, “Xerox hopes to marry its document technologies with ACS’s paper-heavy processing work. It can use its overseas presence to expand ACS. Xerox also is paying a reasonable price of about 13.5 times consensus fiscal 2010 earnings, well below the 29 times that Dell is paying for Perot. Investors may be overreacting.”

Investors overreacting: there are comments out there saying we are grasping for revenue growth. Already, Xerox continues to lead in the fastest growing segments of our market, color adoption, digital production printing and managed print services. We are not desperate for growth – we have made a strategic decision to invest in the future of our company.

In an interview with Fortune, Xerox CEO Ursula Burns tells investors, ”We’re actually scaling our services business and scaling our BPO in a very effective way to respond to changes in the marketplace.”

The ACS acquisition provides us instant scale in the BPO arena. Analysts say the current BPO market is about $130 – $150 billion, and growing 5 to 10 percent. With the Xerox/ACS combination, the total market opportunity is more like $500 Billion.

And shareholders who would like to have seen Xerox buy back stock instead of incurring additional debt? This new company creates a $22 Billion company with $17 Billion in recurring revenue, in our estimation. It brings our services revenue up from $3.5 Billion to approximately $10 Billion.

So, was it a smart move? My answer is a resounding YES!

– Paul Hartley, vice president, Xerox Corporate Business Strategy

Xerox and ACS urge investors and security holders to read the joint proxy statement/prospectus regarding the proposed transaction when it becomes available because it will contain important information. You may obtain a free copy of the joint proxy statement/prospectus, as well as other filings containing information about Xerox and ACS, without charge, at the Securities and Exchange Commission’s (SEC) Internet site (http://www.sec.gov). Copies of the joint proxy statement/prospectus and the filings with the SEC that will be incorporated by reference in the joint proxy statement/prospectus can also be obtained, when available, without charge, from Xerox’s website, www.xerox.com, under the heading “Investor Relations” and then under the heading “SEC Filings”. You may also obtain these documents, without charge, from ACS’s website, www.acs-inc.com, under the tab “Investor Relations” and then under the heading “SEC Filings”. Information regarding participants or persons who may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction is contained in Xerox’s proxy statement for its most recent annual meeting and ACS’s proxy statement for its most recent annual meeting, both as filed with the SEC. This material contains forward-looking statements which involve a number of significant risks and uncertainties.

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9 Comments

  1. Michael J October 1, 2009 - Reply

    As a long time investor, I agree. It should work. I do have a concern that perhaps you could help clarify.

    How might the focus on BPO affect Xerox’s installed based of commercial printers? What is the plan to keep a focus on this sector?

    I’ve always felt that a connection between MPS and the installed base should be a benefit for both. Is there any consideration of that approach.

    Thank you.

  2. Michael Moeller October 1, 2009 - Reply

    To our readers, there will be more details about this acquisition once we satisfy the customary regulatory requirements involved and close the deal. We are focused on providing great value to our customers and meeting our fiduciary responsibilities to shareholders.

    We thank you for your attention and input on this blog and look forward to sharing additional information once we can.

  3. […] Xerox Blogs: The ACS-Xerox deal: was it a smart move? […]

  4. Michael J October 2, 2009 - Reply

    Michael,

    Thank you for your timely response. You might be interested in my blog post as we watch this play out.

    http://ilnk.me/13f

  5. […] I am not a specialist by far, but if you want to know more about it, you can can check out this very good post: “The ACS-Xerox deal – was it a smart move?”. Excellent and very convincing material (at least to […]

  6. Deepak Seth October 5, 2009 - Reply

    I would suggest the critics hold their horses. The success of the acquisition would be driven by the speed,effectiveness and efficiency of the strategies formulated to realize the gains from the synergies resulting from the acquisition.
    I would say the outlook is highly positive. The move from “Paper” to “Process” is a winner given that the “Process” is where the money is. Combining “Paper” and “Process” gives a strategic advantage other competitors may not have.

  7. Jeannette October 5, 2009 - Reply

    I agree with Deepak on this issue. This acquisition will assist ACS in a way that they were struggling – how do we make the transition from paper to processing. It is a win for Xerox because it will test their skills in taking a massive organization dependent on paper and assist its move into the future of processing. Xerox will walk the talk on a very large scale. They are quite aware of the volumes of organizations still dependent on paper. Xerox is taking the lead to guide others on how to most efficiently make this transition.

  8. JosephCar October 13, 2009 - Reply

    Good article, thank you

    best regards

  9. artykuly z linkiem April 2, 2010 - Reply

    I came across your site, i think your blog is interesting, keep us posting.

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