ACS Turns Page with Acquisition Spree

Outsourcer struggled through 2007 with high-profile fight over private equity buyout.

Judging by three recent acquisitions, Affiliated Computer Services Inc. (ACS) appears to be dusting itself off and moving on after an ugly public brawl related to the high-profile unraveling of a private equity deal last year.

In February, Dallas-based ACS agreed to pay $67 million to acquire sds business

services GmbH, a German provider of data center infrastructure services and app-related solutions. This move came after ACS spent $60 million in January for Syan Holdings Ltd., one of the United Kingdom's largest IBM Business Partners. A smaller deal in late February saw ACS add Bowers & Associates Inc., a Wisconsin-based health-care management services and analytics company, for about $8 million.

Gold Certified Partner ACS, an outsourcing and off-shoring company, has about $6 billion in revenues and 62,000 employees. The company does three-quarters of its business in business-process outsourcing and the rest in IT outsourcing, with a 60/40 split between commercial and government contracts.

Tom Clary, director of corporate communications for ACS, says the sds and Syan acquisitions reflect the company's eagerness to expand in a European IT outsourcing market that's valued at 70 billion euros with an estimated compound annual growth rate of 7 percent over the next two years.

"Through Syan, we gained a nice base of operations and clients in the U.K.," Clary says. With sds, he adds, "we've strengthened our presence in the European sector. It allows us to serve our European and global clientele who require us to provide services from Europe."

The Bowers & Associates acquisition adds to ACS's state health-care administration business. ACS processes about 550 million Medicaid claims annually and administers pharmacy benefits for 28 states, the District of Columbia and the U.S. Department of Labor.

The company is awash in good news right now, with quarterly earnings for the last three months of 2007 beating analyst forecasts, improved ratings from stock analysts and the acquisitions. That's a big change from a rough 2007.

In March 2007, private equity firm Cerberus Capital Management LP made a $7.7 billion buyout offer for ACS, raising the offer to $8.1 billion in June. ACS founder and Chairman Darwin Deason engaged in an increasingly public fight with several members of his board over the deal. But as board members brawled, the private equity market ran into the credit crunch of 2007 and Cerberus withdrew its offer. In time, several of Deason's opponents left the board. While Deason stayed, he agreed to relinquish some control over the company.

Clary disputes the suggestion that the board fight took the company off track, especially on the acquisition strategy side. "We're very disciplined," Clary said. "We continued to move forward with acquisitions. The buyout was put forth in March 2007. Shortly thereafter, we closed an acquisition in April. We did another one in June. Then it was another six months before we closed Syan."

Meanwhile, ACS has been expanding its Microsoft practice. A year ago, ACS launched a standardized offering called SolutionOne for Microsoft Exchange, with technology partners Azaleos Corp., Mimosa Systems Inc. and Postini Inc. The company built on the business model in September with the launch of SolutionOne for Microsoft SharePoint. The SharePoint offering, created in partnership with Gold Certified Partner Neudesic LLC, includes architecture, development, continuous management and maintenance services for SharePoint.

Bill Augustadt, ACS vice president and chief technical officer, describes ACS's Microsoft programs as tactical in support of larger sales. "We may win an SAP deal, but we have to take the e-mail, SharePoint and other pieces," Augustadt says in explaining why it makes sense for ACS to pull in partners like Neudesic.

At the same time, Augustadt says ACS's Microsoft practice is growing substantially. "We've gone deeper into the Microsoft stack, complete from systems management to .NET development."

About the Author

Scott Bekker is editor in chief of Redmond Channel Partner magazine.