Xerox Buys ACS

In late 2009, Xerox, traditionally an office equipment manufacturer, acquired Affiliated

Computer Systems (ACS) for $6.4 billion. With annual sales of about $6.5 billion, ACS handles
paper-based tasks such as billing and claims processing for governments and private companies.
With about one-fourth of ACS’ revenue derived from the healthcare and government sectors
through long-term contracts, the acquisition gives Xerox a greater penetration into markets
which should benefit from the 2009 government stimulus spending and 2010 healthcare
legislation. There is little customer overlap between the two firms.
Previous Xerox efforts to move beyond selling printers, copiers, and supplies and
into services achieved limited success due largely to poor management execution. While some
progress in shifting away from the firm’s dependence on printers and copier sales was evident,
the pace was far too slow. Xerox was looking for a way to accelerate transitioning from a
product driven company to one whose revenues were more dependent on the delivery of business
services.
More than two-thirds of ACS’ revenue comes from the operation of client back
office operations such as accounting, human resources, claims management, and other
outsourcing services, with the rest coming from providing technology consulting services. ACS
would also triple Xerox’s service revenues to $10 billion. Xerox chose to run ACS as a separate
standalone business.

Discussion Questions:
1. What alternatives to a merger do you think they could have considered?
2. Why do you think they chose a merger strategy? (Hint: Consider the
advantages and disadvantages of alternative implementation strategies.)
3. How are Xerox and ACS similar and how are they different? In what way will
their
similarities and differences help or hurt the long-term success of the merger?
4. How might the decision to manage ACS as a separate business affect realizing the
full value of the transaction?