Saturday, December 24, 2005

SAM: Equity firms to acquire Affiliated Computer Services

Who: 3 private equity firms including Texas Pacific (leading the deal) , Bain Capital and Blackstone Group

Whom: Affiliated Computer Services (ACS), Inc. based in Dallas, TX - a service oriented firm which processes transactions like employee-benefit changes and accounts-payables.

Competitors: IBM Corp, EDS Corp, Computer Sciences Corp.

Deal: Proposed, $8 billion

Cause & Effect:
  • ACS posted 25% rise in revenue to $1.31 billion, reported Sep. 30
  • Companies such as ACS are attractive to private-equity firms because they have the ability to generate steady cash flows, from their growth oportunities
  • These cash flows allow the owners to take more debt in this non-'Modigliani & Miller' world, backed by that cash and hence pay themselves larger dividends.
  • Since non-financial firms have largely remained on the sidelines this year, these investment firms take the advantage of the lack of competition to bid for these companies and also get attractive financing deals from the banks and bond market.
  • As a result of this proposed deal, ACS stock on the NYSE, rose 5% to $61 yesterday, in a market that was mostly flat Friday.
  • On the bond market, ACS's bonds that were trading near par, fell to around 90 cents on the dollar in anticipation of additional debt leverage that usually follows such buyouts.



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