Xerox Builds Document Management Business with Amici Purchase

Xerox Builds Document Management Business With Amici Purchase

Lou Whiteman
The Deal
June 16, 2006

Xerox Corp.'s $174 million purchase of Amici could be the first of a string of deals for the copier and printer giant as it tries to build its document management services business.

A source familiar with Stamford, Conn.-based Xerox, which announced the deal on Wednesday, said the company is seeking acquisitions that can help move its business away from hardware sales and toward technology services. The company's document management unit, which helps customers convert, organize and store documents electronically, accounts for about one-fifth of Xerox's $15 billion in annual revenue, but the company would like to expand that substantially.

Xerox has made no secret of its intention to build services as a way to diversify away from the competitive and low-margin hardware business. A strong consulting business working with customers to streamline back-office operations and improve efficiency also could push sales of the company's well-known office machines.

Leading this push as chief operating officer of Xerox Global Services is John Kelly, one-time head of NEC Corp.'s U.S. consulting subsidiary and a former managing director at tech consultancy and outsourcing firm Capgemini.

During a conference call in January, Xerox officials noted that the company ended 2005 with $1.6 billion in cash and short-term investments, money they said could be used both to repurchase stocks and make acquisitions.

Albany, N.Y.-based Amici appears to be just the sort of business Xerox is looking for. The company provides document management services to law firms, allowing clients to identify, filter and sort data contained in e-mails, text files, memos, databases and spreadsheets. Amici's Web-based hosting system allows customers to share documents with other law firms, experts and clients.

The company also provides consulting and professional services to assist attorneys in the discovery process. Citing IDC research, Xerox said this so-called e-discovery business could amount to a $2.5 billion market by 2009.

"We're identifying successful companies in niche markets that share our commitment to innovation, personalized service and document management offerings that help people work smarter, faster and better," said Xerox chairman and CEO Anne Mulcahy. "Amici brings all of these strengths to our company and, along with Xerox's litigation support services, will bring all of these benefits to our clients."

The deal, expected to close within the next 30 days, also includes an unspecified earnout. Xerox said most of Amici's 125 workers are expected to remain on board, including CEO Craig Freeman.

Amici is Xerox's largest acquisition since the company's 2000 purchase of the color printing and imaging division of Tektronix Inc. for $925 million. Analysts were underwhelmed by that deal, one of Xerox's last major moves to build its hardware before switching its focus to IT services.

Since that deal, Xerox has been in restructuring mode. Mulcahy was named CEO in 2001, and she has worked to slash costs, divest businesses and repair a balance sheet that was once loaded with $14 billion in debt.

Amici is perhaps best known for the controversy surrounding its ties to lawyer David Boies of Boies, Schiller & Flexner LLP. He drew criticism for steering clients, including Adelphia Communications Corp., to Amici without disclosing that his children are investors in a company that indirectly owned an Amici stake.

Also backing Amici was Albany venture capital firm iDeal Ventures LLC, which helped form the company in 2002. Later that year, Amici bought crosstown rival ProductivityNet Inc., a maker of network software, and another iDeal Ventures-backed startup.