DXC Technology DXC recently announced that it has been approached by a financial sponsor regarding the potential acquisition of the company. However, the IT management company didn’t disclose further details. In its statement, DXC stated that though it is engaged in preliminary discussions, it did not receive any formal proposal for the acquisition.
Later, citing people familiar with the matter, Bloomberg reported that Baring Private Equity Asia made a takeover approach to the U.S. information-technology services provider. The financial news and data provider reported in September that DXC hired financial advisors after receiving a takeover interest.
This is not the first time that DXC has received a takeover proposal. Early in 2021, the company received an unsolicited, preliminary and non-binding proposal to acquire all its shares from the French technology services provider, Atos SE. However, DXC later declined the offer stating it to be inadequate.
We believe that DXC’s remarkable transformation journey from a struggling highly leveraged company to a high-growth business-oriented firm has made it a lucrative takeover target.
DXC Technology Company. Price and Consensus
DXC Technology Company. price-consensus-chart | DXC Technology Company. Quote
DXC was formed by the merger of Computer Sciences Corporation (“CSC”) and the Enterprise Services Division of Hewlett Packard Enterprise HPE, which was completed on Apr 1, 2017. While CSC was founded in 1959, Hewlett Packard Enterprise came into existence after the split of the former Hewlett Packard Company on Nov 1, 2015.
Before the completion of the merger, CSC took an additional debt. This amplified DXC’s total long-term liability, thereby increasing its interest cost burden while limiting its scope for investing in growth opportunities.
To overcome the abovementioned situation, DXC resorted to debt refinancing and divestment as well as a spin-off of non-core assets. The strategy significantly reduced its outstanding debt level to $3.87 billion as of Jun 30, 2022, from $10.33 billion as of Jun 30, 2020. Its interest expenses decreased to $37 million in the first quarter of fiscal 2022 from $106 million in the first quarter of fiscal 2020.
Divestments and spinning off non-core assets have improved DXC’s focus on its core businesses. Also, these enhance the firm’s ability to execute acquisition strategies across high-growth businesses, including enterprise software-as-a-service, technology security solutions and autonomous driving.
In August 2019, the company acquired the independent service management and security solutions provider, Syscom. The acquisition of the leading ServiceNow NOW partner is helping DXC strengthen its position as a leading ServiceNow solutions provider across the Nordics region.
Furthermore, in April 2020, the company’s digital strategy and software engineering arm, Luxoft, had completed the acquisition of the mobility systems developer, CMORE Automotive. This acquisition helped DXC enhance its capabilities in the Autonomous Drive/Advanced Driver Assistance Systems (AD/ADAS) space.
Additionally, DXC depends on partnerships to enhance its offerings. The company is looking to expand its networking-based infrastructure with the benefits of VMware’s VMW hybrid cloud offerings. The move has helped DXC strengthen its position in the virtualization server market. The partnership with VMware also enabled DXC to offer an efficient and improved hybrid IT environment to drive its performance.
Due to restructuring initiatives, the company’s non-GAAP net income margin improved 200 basis points to 5.5% in fiscal 2022 from 3.5% in fiscal 2021. Moreover, non-GAAP earnings jumped 44.1% year over year to $3.50 per share in fiscal 2022.
Currently, DXC, Hewlett Packard Enterprise, ServiceNow and VMware each carry a Zacks Rank #3 (Hold). Shares of DXC, HPE, NOW and VMW have plunged 15%, 17.8%, 35.2% and 2.5%, respectively, year to date. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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