With ACS, Xerox will gain a firm growing quickly offshore

Computerworld - In agreeing to pay $6.4 billion for Affiliated Computer Services Inc., Xerox Corp. will gain a company that has so far weathered the recession better than many companies, maintaining a dependable revenue stream from service contracts with government agencies, health care providers and insurance companies.

ACS has also looked over the past year to control costs by increasing its reliance on people and facilities located offshore.

In a slide presented at an investors' conference this month, Dallas-based ACS said the number of offshore consultants working on commercial projects grew by more than 60% to 31,035 in June from a year earlier. During the same period, domestic workers in the category declined by 8% to 28,324.

Overall ACS has been growing despite the recession. The company said its overall workforce, including personnel working on both commercial and government projects, now totals 74,000, up from 65,000 on June 30, 2008.

Last fall, ACS had told analysts at a briefing that it planned to move "higher level" IT jobs offshore.

In its most recent quarter ended June 30, ACS reported revenue of $1.7 billion, up 6% increase from the year-earlier period. New business contracts in the quarter "were the second highest in company's history."

ACS may be in a good position to get even more business in the next few years as the federal government starts spending billions of dollars to help health care providers create electronic medical records systems. ACS said that health care projects account for about $1 billion of its $6.5 billion in revenue for the year that ended June 30 and added that about 40% of ACS revenue comes from government contracts.

Among the Xerox-ACS combination's competition for health care services contracts will be Dell Inc., whose $3.9 billion acquisition of Perot Systems is slated to be completed around the end of this year. Perot claims that almost half of its $2.8 billion in revenue last year came from health care services.

The U.S. is poised to provide billions of dollars to help health care providers adopt electronic medical records technology, and many of these firms may turn to outsourcers to manage the transition, in part, to help meet a federal deadline of 2015 before penalties begin to kick in.

Xerox, with $17.6 billion in annual revenue, will be expanding its own outsourcing business with an ACS operation that includes 14 data centers and command centers located in Dallas, Bangalore, India, and Monterrey, Mexico. The new ACS subsidiary will be headed by ACS CEO Lynn Blodgett.

The two companies will also marry Xerox's technologies with ACS. In particular, Blodgett said during a conference call this morning, Xerox-developed capabilities for dealing with unstructured data such as e-mail.

Peter Bendor-Samuel, CEO of outsourcing consultancy Everest Group, believes the technology capabilities that these two firms may share is something that will become more evident in the longer term. More immediately, he noted that Xerox is getting the leader in transactional BPO, including such processes as accounts payable and patient billing, which will create cross-selling opportunities for both firms.

Bendor-Samuel said that if Xerox didn't act, it risked being left on the sidelines in a consolidating IT services market. "This is the one acquisition that makes sense for them," he said.

The deal is expected to close in the first quarter of 2010.

The number of offshore consultants working on commercial projects grew, according to ACS. Click for the full PDF.