DXC Technology says takeover talks terminated

Admirer - said to be Baring Equity Asia - couldn't raise funds in current climate

DXC Technology has ended discussions with a suitor that expressed interest in taking over the beleaguered infrastructure services and consultancy but was unable to raise sufficient funds in these uncertain economic times.

The New York Stock Exchange-listed business process outsourcing and IT services multinational confirmed in October that it was in contact with a “financial sponsor” that wanted to acquire the organization.

Management at DXC refused to name that corporate admirer, though it was indicated that it was BPEA making the moves. DXC had hired advisors to help with the process.

DXC last night confirmed those talks are now over. “Due to the financial sponsor’s challenges in raising the necessary capital, as a result of current market conditions, no formal proposal was received by the company and DXC has terminated the discussions,” the statement says.

“Throughout this process, the DXC team has been focused on driving the company to its inflection point,” it adds. “DXC remains well positioned to deliver the business it envisioned for its people, customers, and shareholders, a business that grows organically and expands margin, earnings per share and free cash flow.”

No further comment will be made on the matter, DXC says.

The troubled company was forged when HPE Enterprise Services and CSC merged, two businesses that repeatedly ran cost purges to cut expenses faster than their revenues would decline. Since then, DXC’s revenue declined from $24.55 billion in its fiscal 2018 to $16.26 billion in fiscal 2022.

DXC isn’t alone: IBM got shot of its infrastructure tech services biz, now known as Kyndryl, and Atos is in the process of splitting its business in two between the legacy operations that include enterprise datacenter services provision and faster growing areas including security, big data and cloud.

The cloud has upended the classic field services sector in the enterpise datacenter.

The update shines a light on “how the macro climate is impacting dealmaking and particularly at the larger end,” said market watcher Megabuyte.

“DXC’s take-private was widely rumored to be led by pan-Asian buyout house Baring Point Equity Asia (BPEA), where significant debt facilities would have presumably been required to fund a $10bn+ deal. Debt markets are no longer willing to make such bets,” said analyst James Preece.

“Instead, we’re seeing buyers with existing facilities continue to enjoy committed funding to support M&A and, importantly, often at fixed 2020/21-era interest rates. Those looking to raise new facilities are much harder placed to do so, and certainly not at the cost or leverage previously enjoyed, causing a growing bifurcation between new and old on the M&A playfield.” ®