Hewlett-Packard and the private equity firm The Blackstone Group are working together on a buyout offer for Computer Sciences Corp., the Wall Street Journal reported this morning, saying a deal price could approach $12 billion. The Journal story requires a subscription, but CNN has a summary.
That's not the only deal cooking, either. The Journal says an investor group including Blackstone, Texas Pacific Group, Bain Capital and Silver Lake Partners could announce the acquisition of Affiliated Computer Services as early as Monday. Why all the suddent activity in the sector? The Journal's analysis:
Private-equity players have been diving head-first into the business of computer outsourcing, in which corporations contract out their computer-maintenance and operations to the likes of CSC. The outsourcing companies generate huge streams of cash, a quality that private-equity firms seek because they can then put a lot of debt on the companies they acquire and produce greater returns for their investors. At the same time, though, these outsourcing companies are in a highly competitive market that is being transformed by low-cost providers in India and throughout Asia.
Both CSC and ACS operate significant networks of data centers, so any buyouts could lead the acquirer to assess the cost-effectiveness of the networks, particularly if the buyer (HP, for example) may have data centers of its own in some of those markets. Stay tuned ... we should hear more about both of these deal stories in coming days.