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Xerox’s 2010 acquisition of Affiliated Computer Services (ACS) sharply expanded the company’s outsourcing business, but the first full-year results show why added revenue is not the same as comparable growth—or proof that a merger paid off. Xerox reported 43% revenue growth in 2010, primarily because it had acquired ACS; on a pro forma basis that included ACS in the prior-year comparison, revenue grew 3%. The company also reported lower gross margins and acquisition-related integration costs.
What happened when Xerox bought ACS?
Xerox completed its acquisition of ACS on February 5, 2010, and announced the completion on February 8. Xerox’s 2010 annual report described the cash-and-stock transaction as worth approximately $6.5 billion. ACS supplied business-process outsourcing (BPO) and information technology outsourcing (ITO) services to commercial and government clients, extending Xerox beyond its traditional document technology and services base.
The scale was substantial. Xerox’s annual report said ACS had generated $6.6 billion in calendar-year 2009 revenue, employed 78,000 people, and operated in more than 100 countries at the time of acquisition. Its clients spanned sectors including education, energy, finance, government, health care, retail, and transportation. Xerox 2010 Annual Report, filed with the SEC.
Why did Xerox acquire ACS?
The deal was intended to make Xerox a broader services company by adding business-process outsourcing and IT services to its document management capabilities. In its completion announcement, Xerox pointed to ACS work such as processing credit-card applications and student loans and providing human-resources services. Those examples illustrate the range of work ACS handled; they are not independent evidence of customer savings or service improvements. Xerox’s February 2010 acquisition-completion announcement.
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How did the merger affect Xerox’s revenue and margins?
Reported revenue rose as Xerox added ACS
Xerox reported $21.6 billion in 2010 revenue, 43% more than in 2009. The company said the increase was primarily due to the ACS acquisition. Because ACS’s results were included only after the February 5 close, the reported year-over-year increase combines the acquired business with the timing of its consolidation; it should not be read as 43% organic growth.
For a more comparable view, Xerox also presented pro forma revenue growth of 3%, with ACS included in the comparison period. The two figures answer different questions: 43% describes reported growth as the company expanded through the acquisition, while 3% describes growth on Xerox’s pro forma comparison. Both figures are company-reported, and neither alone establishes whether the deal created lasting value. Xerox 2010 Annual Report, filed with the SEC.
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Gross margins declined
Xerox reported that total gross margin declined 5.3 percentage points on an actual basis in 2010. The gross margin for service, outsourcing, and rentals declined 9.5 percentage points on an actual basis. Xerox attributed the declines primarily to the acquisition. The reported figures signal first-year margin pressure alongside the larger revenue base; they do not isolate every factor affecting profitability or establish the acquisition’s long-term effect. Xerox 2010 Annual Report, filed with the SEC.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.Did Xerox’s ACS acquisition pay off after one year?
The first-year evidence supports a measured answer, not a simple yes or no. The transaction clearly added a large outsourcing operation and lifted reported revenue. But the pro forma growth rate was far below the headline reported increase, gross margins fell, and Xerox disclosed acquisition-related expenses, including costs directly related to integrating ACS and Xerox. Xerox 2010 Annual Report, filed with the SEC.
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These filings and Xerox’s announcement establish the company’s transaction terms, stated rationale, and reported financial results. They do not, by themselves, show whether customers received better service, paid less, or realized savings, nor do they demonstrate that anticipated synergies were achieved. A first-year checkpoint can show the scale added and the early financial pressures; it cannot settle the deal’s long-term success.
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