Acquisition fever has turned up the temperature yet again in the sourcing marketplace.
By now you’ve probably heard that Xerox will acquire ACS during the first quarter of 2010 in a cash and stock transaction valued at US$6.4 billion. Aside from the numbers, what does today’s news mean for the global sourcing industry?
As discussed on this blog twice just last week, the market has seen significant acquisition activity over the past 18 months. Today’s Xerox/ACS news continues the ongoing industry consolidation of service providers with ― again ― a (mostly) large products company buying a services company. Witness last week’s announcement of Dell’s acquisition of Perot Systems and the final phase-out of the EDS brand after having been acquired by HP last year.
Why is this happening? From the acquirer perspective (HP, Dell and Xerox):
- Under significant revenue and margin pressure, all need to diversify their revenue and offering mixes
- They see potential opportunities to cross sell to the new set of clients
- They perceive synergies in the mix of combined solutions
On the flip side, the acquired company has the added benefit of increased access to capital for product and service offering investment, as well as increased ease of financing capital investments related to individual client engagements.
There is always a rub, though. Several challenges that accompany these deals and present significant hurdles to realizing the benefits of acquisition are:
- Integrating the two cultures
- Cross selling services to each other’s clients
- Managing the pressure to sell the parent company’s products
Notably, “vendor independence” has long been a hallmark of the services market. While this has morphed over time as service providers have migrated toward preferred hardware and software platforms in order to reduce initial investments and ongoing maintenance costs, it still remains a significant factor in the marketplace. Balancing the fine line between providing only the parent company’s products versus the offerings that the market or individual client is demanding will be a significant hurdle to all of the companies discussed here. The degree to which these companies are able to mitigate these challenges will have a substantial impact of their success in the market with their combined entities.
What other benefits and challenges do you see with the continued trend of hardware providers buying services providers? Who do you think will get the fever next?
