Will the Kyndryl and Apollo bid reshape DXC’s fortunes?

Global IT services firm Kyndryl and private investment firm Apollo Global have reportedly made a bid for DXC Technology, according to sources at Reuters.

Apollo and Kyndryl have discussed an offer of between US$22 and US$25 per share, according to the report. Since the news broke, DXC shares lifted 11 per cent on the New York stock exchange at US$18.45, placing a market value of US$3.3 billion. Neither party has commented on the matter. 

The report also noted that DXC was separately soliciting bids to sell its insurance software business. The systems integrator took a similar route in 2020, selling its healthcare technology business to private equity firm Veritas Capital for US$5 billion in cash at the time.

However, this is not the first time a global systems integrator (GSI) has attempted to make a move on DXC. 

In 2021, French-based tech giant Atos put a US$10 billion offer on the table for DXC, with discussions falling through after the DXC board rejected the offer.

DXC changed leadership hands at the end of last year with Mike Salvino exiting the business after being in the top role since 2019. He was succeeded by Raul Fernandez who had been a DXC board member since 2020 and came into the role with a wealth of executive and operational experience with organisations such as Proxicom, Dimension Data North America and ObjectVideo. 

Tech Research Asia industry analyst Mark Iles noted the shift towards digital transformation impacted traditional GSI business models, which have been pivoting towards a more consultative approach.

This has resulted in increased competition from large consulting firms such as Accenture, PwC, Deloitte, EY and KPMG, while also facing smaller, nimble specialist organisations.

“GSIs are facing challenges in the digital transformation era with customers adapting their procurement approaches,” Iles said. 

“This has been going on for a few years now where customers were somewhat reticent to re-sign large outsourcing contracts as they started breaking them down into smaller contracts, disrupting that market. A lot of GSIs have struggled with that transition while some have pivoted better than others.” 

Adding to this is, as due to salary pressures and increasing competition in the market, GSIs are not making as much money as they used to, Iles said. 

“Unfortunately, DXC is in that camp as well, with revenue declining 5 per cent year-on-year from FY24 vs FY23 and declining 11 per cent the year prior. It’s often easier when looking to transform or restructure a business like DXC to either take it private to do this or integrate it into a larger business to drive synergies so an approach like this could be quite attractive.”

DXC’s fourth quarter revenue slid from US$3.6 billion in FY23 to US$3.4 billion in FY24. 

An external party such as Apollo could benefit DXC in executing a restructure, taking a deep dive into its operations and factoring how to transition the business to get it back to growth, Iles added.