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On the Xerox-ACS Merger
While Wall Street focuses on the fabled "bottom line" of the proposed combination of Xerox and ACS, let's spend a few moments analyzing what the combination could mean for the HR outsourcing industry. ACS has been a major force in the HRO business since its acquisition of the HR service centers of Motorola early in this millennium. The ACS brand has been distinguished by a global service-delivery model, a pragmatic approach to HRO services and a small but growing bench strength in certain HR areas such as learning and benefits services. Xerox Corp. has no footprint in business-process outsourcing other than a small legal-services business. Its document-management lines have some cultural affinity for what ACS does in claims-management services, but there is no great overlap in current products and services between Xerox and ACS. The combination of these two firms will crest $20 billion in revenue when the purchase is complete (possibly by the first quarter of next year). Scale and revenue alone are not reasons for merging major entities with established brands. The purported reasons for the purchase by Xerox of ACS have been announced as scale, global presence and synergy. Scale is certainly a tendency that has been apparent in the ITO and IT businesses lately, as evidenced by Dell-Perot Systems and HP-EDS. Both of those combinations, however, involve more analogous businesses than we see with Xerox and ACS. ACS has a sound global presence in HRO, but that is not equally true in the rest of its business. Xerox brings a highly regarded global brand to the combination, and a very large sales and business-development group that nurtures and grows the roughly $8 billion of its revenues that come from outside the United States. This aspect of the combination should be positive for ACS, and should continue the growth of the ACS HRO presence outside the United States. There are some limits to that benefit. In terms of synergies, there will be reduced costs and efforts that arise out of the combination of internal-technology forces and investor relations and governance staffs. Better use of the global sales force to cross sell and develop new accounts will also yield savings over time. Whether those synergies can net the $300 million to $400 million over three years that the press releases of both companies indicate is possible remains to be seen. For the HRO, medical claims, student loan and other BPO businesses in ACS, it is doubtful that the Xerox presence will have any immediate benefit to ACS. Those processes already use state-of-the-art imaging and cost-advantaged production centers in India, Malaysia and other low-cost centers. With respect to global sales development, there will be better access to top-tier companies for ACS, but we should not be fooled into thinking that Xerox sales people can close an HRO sale without significant training. Sales people in HRO need substantial experience and training in HR compliance and technical aspects of the industry in order to be credible. As lawyers are wont to say about purchases or mergers of major companies, "there's many a slip 'twixt cup and lip . .," so we should keep a watchful eye on this transaction.
Lowell Williams > is executive director of HR Advisory Services for EquaTerra, a BPO consulting firm based in Houston. He can be reached at < lowell.williams@equaterra.com. November 1, 2009 Copyright 2009© LRP Publications |
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© Copyright 2012 LRP Publications. All rights reserved.
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