Why the Xerox-ACS Deal Works

 

In conference calls with analysts and journalists, executives from both Xerox and ACS said the deal will help Xerox evolve from a printing and document company to a $22 billion juggernaut that can offer a wide range of back-end services on a global scale.

Of that $22 billion, $17 billion will be from recurring revenue, with revenue from services being expected to grow from $3.5 billion in 2008 to $10 billion in 2010. In the second quarter, Xerox reported that its services, outsourcing and rental business generated more than $1.9 billion.

"The lines between business process and document management are blurring," Xerox CEO Ursula Burns said Sept. 28.

Customers are looking for technology partners that can not only handle their document management needs, but also offer a range of back-office services to complement what those customers do in the front office, Burns said.

Xerox officials estimate the BPO market at about $150 billion. ACS brings with it contracts with more than 1,700 federal, state, county and local governments, and also has a presence in such sectors as telecommunications, retail, financial services, health care and education. Overall, about 60 percent of ACS' business is in the commercial sector, with 40 percent in government.

Burns estimated that there is about a 20 percent customer overlap between Xerox and ACS, which gives Xerox about 80 percent of ACS customers that it can now try to sell into.

IDC's Boyd said adding BPO capabilities to its services lineup makes sense for Xerox, enabling the company to expand what it can offer its customers. Xerox can grow beyond the managed services arena of break/fix, toner replacement and installation, and into an area that includes business workflow services, which is key given that businesses are looking to streamline their business processes to help drive down costs and increase revenues.

"It's very, very important not only to Xerox, but [to] the industry that Xerox competes in," Boyd said. Those competitors include HP, Dell-with Perot Systems-and IBM, she said.

The key for Xerox will be executing on the merger. For example, right now Xerox's direct sales force does not have any experience selling what ACS offers. Training in that area will be crucial to ensuring the deal works out.

"Still, what they bought is terrific because of ACS' strength in BPO," Boyd said. "They have a wide portfolio of services."

The deal with Xerox also will make ACS a more efficient business, according to ACS President and CEO Lynn Blodgett. For example, a major chunk of ACS' business involves document management, which for ACS is a heavily manual operation. Xerox technology will help ACS automate many of those manual operations, which will help ACS reduce errors and costs, Blodgett said.

Xerox also will give ACS a more international reach. The company has a strong U.S. presence, but not much beyond those borders, Blodgett said.

The deal is expected to close in the first quarter of 2010.