digibyte - CSC looks to close acquisitions to drive growth

Computer Sciences Corporation (CSC) has won the bidding war for insurance software and services firm Xchanging after the deadline for rival Ebix to submit a formal bid lapsed at the weekend.

Ebix had until 5pm on 6 February to table a formal offer, 53 days after CSC submitted its firm proposal of 190p a share on 9 December. With that deadline now passed, CSC intends to focus on closing the deal, as well as a separate acquisition of Australian firm UXC.

CSC, which has spun off its public sector business, yesterday turned in a profit of $43 million, compared with a loss of $314 million, for the quarter ended 1 January. But revenues slipped 10% to $1.75 billion, lower than Wall Street expectations.

CEO John Lawrie says that with the government business split off, attention now turns to growth, fuelled at least in part by its two latest acquisitions:

Xchanging is the leader in the insurance BPO and insurance software business and is based in the UK. CSC is the number one provider of insurance-specific tech services within the global insurance market; and Xchanging allows CSC to extend this leadership with a complementary commercial insurance offering and differentiated software and intellectual property. And we've already received approval from Xchanging's shareholders and are now in the final regulatory stage.

We remain on track to complete our UXC acquisition in Australia by the end of February; and the combination of UXC and CSC will create the number one IT services provider in the Australian market. And UXC brings a strong mix of offerings with approximately two-thirds of its revenue in applications and next-gen services.

In addition, UXC has many clients in the middle market, which complement CSC's traditional strengths with larger clients and with literally thousands of clients who will give us an opportunity to up-sell and cross-sell to that base.

These acquisitions of UXC and Xchanging are consistent with our strategy of growing our next-gen offerings, expanding our IP in key industry verticals like insurance healthcare and banking, and extending our reach further in the mid-market.

CSC’s cloud business remains healthy, says Lawrie, with cloud revenue was up 40% year-over-year in constant currency and 19% on a sequential basis. Lawrie cites one customer example as a case in point:

A leading insurance client chose CSC to facilitate its transition to cloud. We won this contract and displaced a longstanding incumbent based on our expertise in hybrid cloud solutions, our track record of global delivery and our unique strategic partnerships with leading technology firms such as Amazon in this case.

My take

The split has been executed. The acquisitions look to be nicely teed up. The next few quarters will put Lawrie’s growth strategy to the test.