The report claims that HP and Blackstone, which was one of a group of private equity firms involved with Lockheed Martin in an aborted $12bn bid for CSC last November, are in preliminary discussions with the IT services giant.
CSC’s talks with Lockheed floundered on the deal structure because Lockheed only wanted CSC’s government business, which makes up about a third of CSC’s $14.1bn annual revenue. Although a group of private equity firms were prepared to buy the rest, CSC wanted to sell its entire business to Lockheed rather than have two transactions.
This time it appears that there are no plans to break up the business, with HP looking to buy a minority stake with the option to buy out Blackstone, and any other investment groups involved, at a later date.
If the report is accurate, it shows just how keen private equity firms are to invest heavily in IT and BPO services. They are attracted to the high level of growth expected in outsourcing over the coming years and believe that some providers are currently undervalued.
Reports also claim that Affiliated Computer Service Corp is close to selling up to a group of private equity firms including Blackstone for $8bn, and an announcement could be made early next week.
Since HP replaced Carly Fiorina with a new, more accountancy-focused CEO, Mark Hurd, the company has changed its priority in services from top- to bottom-line growth, which it hopes to achieve through restructuring and being more selective in pursuing large outsourcing deals.
In its most recent quarter the company increased its operating profit margin to 8.3%, though this was way below the 13.7% margin CSC posted for the three months to the end of September.
