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December 19, 2014
martinwolf Transaction Analysis

Xerox Sells IT Outsourcing Business to Atos for 1.05 Billion 

 

Financial Information*

  • Enterprise Value                                                                           $1.05B
  • EV/Revenue                                                                                     0.7x*
  • EV/EBITDA                                                                                      9.1x*

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.


 

*Note that while financial information was not officially disclosed, reports in Bloomberg and the New York Times provides estimates for revenue and EBITDA, respectively.


To receive instant analysis on the day's business news the martinwolf team, follow us on Twitter @martin_wolf_ and on LinkedIn at martinwolf.
 


 
martinwolf was not the advisor in this transaction.

 

About martinwolf    

 

                
                Walnut Creek, CA                                                Bangalore, India

With offices in the San Francisco Bay Area and Bangalore, India, martinwolf is a leading middle market M&A Advisory focused on companies in the IT Services, IT Supply Chain, IT-Enabled Business Process Outsourcing and Software as a Service (SaaS) space. Since 1997, our team has completed more than 125 transactions in sixteen countries and sold seven divisions of Fortune 500 companies. 

 

The firm is also a presenting sponsor of the Global IT M&A Forum.   

 

martinwolf is a member of FINRA and SIPC. For more information, visit www.martinwolf.com.  

 

To learn more about martinwolf, contact Matthew Putzulu at [email protected].

 

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