Xerox To Buy ACS For $5.6 Billion To Dominate Office Services

Could It Be A Costly Gamble In These Economic Times?

Xerox Corp. (XRX.N) and new CEO, Ursula Burns, unveiled plans to buy Affiliated Computer Services Inc (ACS.N) for $5.5 billion. It would mark the biggest acquisition in Xerox’s 103-year history, joining a wave of hardware makers expanding into services. Shares of the printing company plunged on concerns that it was gambling on a major shift in strategy.

Aimed at snapping Xerox out of its funk, the acquisition was called a “game changer” that will help the company dramatically expand. Combining Xerox’s strengths in document technology with ACS’ expertise in work-process management and automation they hope to generate triple the revenue from services, which was $3.5 billion in 2008 to an estimated $10 billion next year. Ursula Burns, a Xerox veteran who took over in July, is definitely seeking new markets. “Through our strategic initiatives, it became clear that the $150 billion business process outsourcing (BPO) market is well aligned with our business and a key driver of long-term growth,” Burns told investors.

Quite lofty expectations many industry analysts perceive, especially with Global Economies still in flux, and many dramatically reducing purchasing budgets. ACS is also the larger of the two companies, with 74,000 workers compared with Xerox’s 54,000…so some restructuring is likely coming. ACS automates paper-based work processes and provides specialized BPO and IT services to a wide range of industries, including telecommunications, retail and financial services, health care, education and transportation.

Xerox, known worldwide as a hardware company specializing in copiers and printers was facing ever-increasing pressure from rivals such as Hewlett-Packard (who acquired EDS), and Dell (who acquired Perot–Presidential Candidate Ross Perot’s Company), in their purchase of service companies.

With its acquisition of ACS, Xerox will become a $22 billion company, of which $17 billion is in recurring revenue. Together, they hope to streamline the entire document production and information flow in offices on a global level, as Xerox hopes to scale ACS to markets like Europe, Asia and South America.