The cash-and-stock deal, valued at $6.4 billion, comes in the wake of news in July that Hewlett-Packard’s ExcellerateHRO division is exiting HR business process outsourcing. Xerox also is the latest technology hardware company to buy a business services firm, after HP snapped up EDS and Dell said it will buy Perot Systems.
“The hardware players are having to get into business services in order to find ways to boost margins,” says Neil McEwen, managing consultant at advisory firm PA Consulting.
Dallas-based Affiliated Computer Services, known as ACS, employs 74,000 people. It offers business process outsourcing services in areas including finance, information technology and human resources. For the year ended June 30, ACS reported revenue of $6.5 billion and net income of $350 million.
Norwalk, Connecticut-based Xerox is most famous for its copy machines, but also provides document management consulting and outsourcing services. The 54,000-employee company posted $230 million in net income on revenue of $17.6 billion in 2008.
“By combining Xerox’s strengths in document technology with ACS’ expertise in managing and automating work processes, we’re creating a new class of solution provider,” Xerox CEO Ursula Burns said in a statement. “A game-changer for Xerox, acquiring ACS helps us expand our business and benefit from stronger revenue and earnings growth.”
ACS will operate as an independent organization and initially will be branded ACS, a Xerox Company, Xerox said. It will be led by ACS chief executive Lynn Blodgett, who will report to Burns. The deal is expected to close in the first quarter of 2010.
HR business process outsourcing has been a difficult market for vendors. Profits have been elusive given the complexity of shifting the entire HR function to a third party. The HR outsourcing market is “a lot more active than it was a year ago,” McEwen says. He says there are fewer big multi-process deals and many small discrete contracts.
ACS is considered one of the top multi-process HR outsourcers, along with IBM, Accenture and Convergys. Hewitt, a pioneer in the field that ran into trouble with early deals, also continues to compete for HRO business.
Customers of ACS’ HR outsourcing services will gain little from the Xerox acquisition, McEwen says, although one benefit is the addition of Xerox’s expertise with digitizing documents.
McEwen says the Xerox-ACS deal probably won’t be the last of the hardware-business service firm marriages, noting that Convergys could be an acquisition target in the future.
“I suspect you’ll see a few more like that,” he says.