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This is the second major deal involving Texas IT services companies this month. A week ago PC maker Dell offered $3.9bn for Perot Systems.
ACS specialises in managing paper-based work processes and providing BPO and information technology services for sectors that include telecommunications, retail and financial services, healthcare, education and transportation.
Xerox said the cash and shares deal "will transform Xerox into the leading global enterprise for document and business process management, and will accelerate its growth in an expanding market". The global BPO market was estimated at $150bn, growing at an annual rate of 5%, it said.
In the year to August 2009, ACS had sales of $6.5bn with revenue growth of 6%. During FY2009, it signed contracts with new clients and incremental business with existing clients worth $1.0bn of annual recurring revenue with an estimated $4.5bn in total contract value. The commercial segment contributed 61% of the new contract signings and the government segment contributed 39% of the new contract signings, based on annual recurring revenue.
Xerox chief executive officer Ursula Burns said the deal was "a game-changer for Xerox". "By combining Xerox's strengths in document technology with ACS's expertise in managing and automating work processes, we're creating a new class of solution provider," she said.
Xerox would become a $22bn global company, of which $17bn was from recurring revenue, she said. "The revenue we generate from services will triple from $3.5bn in 2008 to an estimated $10bn next year."
Xerox expects to save $300m to $400m in the first three years from not having to run two companies, from sharing procurement and using ACS for some of Xerox's back-office work.
ACS president and CEO Lynn Blodgett said that for ACS to expand globally and differentiate its offerings through technology, it needed a partner with brand strength and innovation capacity. "Xerox offers that and more," she said.
Xerox plans to growth its sales by leveraging its brand and customer base to boost ACS's business in Europe, Asia and South America. Xerox will also integrate its intellectual property with ACS's services to create new solutions for end-to-end support of customers' work processes.
ACS will operate as an independent organisation branded as ACS, a Xerox company. Blodgett will head it, and report to Burns.