December 11, 2015

Xchanging Agrees to Deal with CSC

Earlier this week, British outsourcing company Xchanging Plc agreed to be acquired by Computer Sciences Corp (through a UK subsidiary), making it CSC’s largest deal since it split into two public companies this year.  The acquisition is expected to close in the next six months pending various required regulatory approvals. The combination combines CSC’s global scope in insurance, BPO and IT services with Xchanging’s specific expertise and leading software products that support the commercial insurance industry.

The deal between Xchanging and CSC was struck after a bidding war which included Capita (who thought it had the deal locked up a month ago), Ebix and Apollo Global. The agreed price was £1.90 per share in cash, implying an equity value of £480 million, or approximately US$720 million. Inclusive of net debt the deal translated to a purchase multiple of approximately 1.3x revenue and 8.0x EBITDA based on estimated CY2015 results. The offer  represents a premium of about 72% to Xchanging’s closing share price on Oct. 2, the day before the offer period commenced.

CSC has been on a roll lately as it tries desperately to build out a competitive commercial business to challenge the likes of Accenture, IBM and others.   In the past four months alone it has acquired Fruition Partners, Fixnetics, UXC and WineDirect. All interesting and “different” deals as they cut across various horizontals (services, software and outsourcing), further illustrating the convergence theme that we have been seeing and preaching for several years now.