Global M&A Deals Surge as Xerox Acquires ACS for $6.4bn

Strategic Insights -

Global mergers and acquisitions (M&A) activity saw a significant boost yesterday as Xerox announced plans to buy American IT outsourcing company Affiliated Computer Services (ACS) for $6.4bn (pounds 4bn). The deal, along with two other major announcements, helped the FTSE 100 jump 1.64% to 5165.7. The move marks the latest trend of old-fashioned technology companies acquiring services companies, as they struggle with declining sales due to the recession.

Key Takeaways:

  • Xerox plans to buy American IT outsourcing company ACS for $6.4bn (pounds 4bn), marking the company's first major move under new CEO Ursula Burns.
  • The acquisition is expected to triple Xerox's services revenue to about $10bn next year, from $3.5bn in 2008.
  • ACS shareholders will receive 4.935 Xerox shares plus $18.60 in cash, a 34% premium on the previous closing price.
  • The deal is expected to achieve savings of $300m to $400m in the first three years following the transaction.
  • Xerox shares closed down $1.30 at $7.68 in New York, while shares in ACS closed up $6.61 at $53.86.
  • Mark Bon, fund manager at Canada Life, attributed the surge in M&A activity to low valuations and companies seeking to be "quick off the mark" in accessing financing.
  • The acquisition marks a growing trend of technology companies acquiring services companies to combat declining sales.
  • Xerox has pledged to cut $300m in costs this year, following a previous job cut of 3,000 employees, or 5% of its workforce, in October 2009.

Statistics:

  • Xerox plans to expend $6.4bn to acquire ACS.
  • The acquisition is expected to triple Xerox's services revenue to $10bn next year.
  • ACS shareholders will receive a 34% premium on the previous closing price.
  • The deal is expected to achieve savings of $300m to $400m in the first three years.
  • Xerox shares closed at $7.68 in New York.
  • ACS shares closed at $53.86.

Sources:

  • "Xerox to buy ACS for £4bn" by FT
  • Bloomberg release: "Xerox to Buy Affiliated Computer Services for $6.4 Billion" by Bloomberg
  • "FTSE 100 rises 1.64% as tech giants swoon" by FT
  • "Xerox Sees First-Quarter Revenue of $3.3 Billion, Excluding the Acquisition" by Bloomberg