The Xerox name is generally well known. And now, Xerox Corp. may become even more well known in the insurance industry, as it signed a definitive agreement with Affiliated Computer Services Inc. (ACS) to acquire the business process outsourcing (BPO) firm.

ACS has a good position in the insurance space in application and infrastructure maintenance, according to Matt Josefowicz, director of insurance at Novarica, and whether ACS can transfer some of their industry expertise to Xerox, which has not had much to offer the industry in terms of vertical solutions, remains to be seen. “Although Xerox has a lot of document output expertise, they haven't had much success in crafting a meaningful message about their capabilities for insurers,” Josefowicz tells INN. “Perhaps they'll be able to leverage some of ACS' expertise in insurance workflows to expand their position in the industry.”

The cash and stock transaction is valued at $63.11 per share or $6.4 billion as of the closing price of Xerox stock on Sept. 25. Xerox expects the acquisition to transform Xerox into a leading global enterprise for document and business process management, and accelerate its growth in an expanding market.

ACS is reporting a good fiscal 2009, with revenue growth of 6% and new business signings of $1 billion in annual recurring revenue. With this acquisition, Xerox is confident it will achieve significant incremental revenue growth by leveraging Xerox's strong global brand and established client relationships to scale ACS's business in Europe, Asia and South America. In addition, Xerox will integrate its intellectual property with ACS's services to create new solutions for end-to-end support of customers' work processes.

"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," Ursula Burns, Xerox CEO, said in a release. "A game-changer for Xerox, acquiring ACS helps us expand our business and benefit from stronger revenue and earnings growth.”

ACS's expertise is in managing paper-based work processes and providing specialized BPO and information technology services for industries that range from telecommunications to healthcare, and of course, insurance.

"We're proud of our significant profitable growth over the past 20 years and our ability to manage our clients' operations with a global infrastructure and workforce," says Lynn Blodgett, who will lead the newly branded ACS, a Xerox Company. "We also know that for ACS to expand globally and differentiate our offerings through technology, we need a partner with tremendous brand strength and leading innovation. Xerox offers that and more to bring our business to the next level while strengthening theirs."

Xerox expects to achieve annualized cost synergies that will increase to the range of $300 million to $400 million in the first three years following the close of the transaction. The synergies are primarily based on expense reductions related to public company costs, procurement and using ACS's expertise in back-office operations to handle some of Xerox's internal functions.

This acquisition also spurs concern about the future of pure IT services companies. "It looks like large independent IT services companies are an endangered species,” Josefowicz says. “Coming straight on the heels of Dell/Perot Systems, Xerox's announced acquisition of ACS looks like another realization by a U.S. hardware company that a strong services portfolio is important to their ability to maintain and grow enterprise relationships. Of course, Xerox makes a ton of its money from printing consumables, but just like HP, the markets have a hard time recognizing that.”

 

 

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