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Analysis of the Xerox Acquisition of Global Imaging Services - WTT Exclusive

Press release from the issuing company

April 4, 2007 -- (WhatTheyThink.com Exclusive - By Cary Sherburne, WTT Senior Editor) -- Xerox announced its third acquisition in the past year on April 2nd, with a definitive agreement for the acquisition of Global Imaging Systems, a leading provider of office technology solutions. This follows the $175 million cash acquisition of Amici LLC in July 2006, a provider of electronic-discovery services that support litigation and regulatory compliance; and the acquisition of XMPie for $54 million in November of last year. XMPie is the leading provider of software for personalized, multimedia marketing campaigns. Xerox has agreed to acquire Global for $29 per share in cash. The total purchase price is expected to be about $1.5 billion and will be funded in cash. The deal is expected to close in May. Xerox expects the deal to be accretive in 2007. Global Imaging Systems focuses on small and mid-size businesses (SMB) through 21 regional core companies in the U.S. that sell and service document management systems such as printers, copiers and multifunction devices; network integration services; and electronic presentation systems. Each of these 21 companies maintains is own brand, and will continue to do so following the acquisition. Today, Global Imaging Systems sells products from a Who’s Who list in the industry, including Canon, Ricoh, HP, Katun, Konica Minolta - and the list goes on. The company is not currently selling Xerox products. Global Imaging Systems will maintain its headquarters in Tampa, FL, operating as a wholly owned subsidiary, with Founder, Chairman & CEO Tom Johnson remaining at the helm. Global currently has revenues of some $1.1 billion, and 4,500 employees. That includes 1,400 sales people and 1,700 in service. The primary stated strategy for Xerox to make this acquisition is its lack of representation in the small and medium business segment (SMB). According to Xerox statements, the SMB market represents a $16 billion document services opportunity, and the company quotes IDC data reflecting that placement of office printers and multifunction products in the segment is growing at a compound annual growth rate of 15% over the past five years. According to James A. Firestone, President of Xerox North America, this segment represents some 99% of U.S. establishments, and Xerox is not even considered in an estimated 80% of the segment decisions. Xerox sees this as an opportunity to get a seat at the table in more of those decisions. What remains to be seen is how Global’s current partners will view this acquisition, and how much of the company’s $1.1 billion in revenues from those sources will be sustainable. Clearly, Xerox would like to transition as many of its office and light production products, as well as managed services, into the mix as quickly as possible. Currently, Xerox has some 2,500 “feet on the street” through its agent channel, and the acquisition of Global adds 50% to that sales capacity and the ability to serve 200,000 new customers. Xerox’s Firestone expressed confidence that Xerox would be able to minimize channel conflict as more Xerox product enters the Global portfolio. Firestone also indicated that while Xerox rather quickly added tenured Xerox staff to the senior management team at recently acquired XMPie, he did not believe that would happen as rapidly at Global, but looked forward to “making Xerox talent available” to the company as needs dictate, indicating that Xerox talent would have much to learn from working at Global.