December 19,2014

Xerox Sells IT Outsourcing Business to Atos for 1.05 Billion

martinwolf Transaction Analysis

Financial Information*

Transaction Facts

Silicon Valley stalwart Xerox (NYSE:XRX) announced late Thursday that it was selling its IT Outsourcing business to Atos (EURONEXT PARIS:ATO) for $1.05 billion.
The two companies have an existing relationship spanning several years – Xerox provides Atos with managed print, human resource and financial services, while using Atos for ITO work in Europe.
Following the announcement, shares Xerox are up slightly (approximately 1 percent) while shares of Atos are up approximately 6 percent.

Offloading Baggage, But Not at a Premium

Checking the Scoreboard: In this week’s MW Scoreboard, our proprietary database of median multiples in the IT industry, we can consult two categories for context on this transaction:
- First is IT Outsourcing, trading at 1.99x revenue and 12.6x EBITDA.
- Second is Offshore Outsourcing >500M, trading at 2.62x revenue and 12.6x EBITDA.
From these higher numbers, we can conclude that Xerox’s outsourcing business provides significantly lower value-added services and gross margins than its peers.
Low Size Where Size Matters: Another interesting point about this transaction is Atos’ relative lack of presence in the US market. This transaction will triple its size in the US, catapulting it to Atos’ largest market – but the company must continue to be active in growing its business to compete with its new peers: TCS, Wipro, Cognizant, HCL, IBM and HP.
Go Big or Go Home: Xerox is divesting this aspect of its business because it can no longer compete with the global outsourcing companies that give the space their full attention and resources. Without a competitive advantage or compelling high margins, this unit was not worth the resources Xerox was putting into it.

For more information, view the press release by clicking here. martinwolf was not the advisor in this transaction.

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