Xerox's Acquisition of Lexmark to Drive Competitive Advantages in Print Equipment Industry

Xerox, a former tech star, is facing a decade-long decline in its print equipment business due to digitization, declining print volumes, and changing workplace needs. Despite this, some areas such as digital printing, packaging, and specialized print applications remain resilient. Xerox has acquired Lexmark International for $1.5 billion, consolidating two large players in the global print and managed print services industry. The acquisition is expected to drive competitive advantages, solidify Xerox's leadership in managed print services, and enhance its capabilities for workplace transformation.

Xerox, once a tech giant, is currently navigating a decade-long decline in its print equipment business due to digitization, reduced print volumes, and evolving workplace needs. While traditional analog printing has been hit hardest, digital printing, packaging, and specialized print applications have shown resilience and growth. To adapt to this shifting landscape, Xerox has been focusing on innovation and technology, particularly in digital services and IT infrastructure.

In July 2025, Xerox acquired Lexmark International for $1.5 billion, consolidating two major players in the global print and managed print services industry. The acquisition included Lexmark's net debt and liabilities, financed by Xerox through a combination of cash and debt financing. The purchase aims to drive competitive advantages, solidify Xerox's leadership in managed print services, and enhance its capabilities for workplace transformation.

The acquisition brings together Xerox's legacy in office photocopiers and managed print services with Lexmark's strengths in printers, imaging technologies, and enterprise solutions. This strategic move has positioned Xerox to lead in every major print segment globally, serving over 200,000 clients in 170 countries. The combined entity offers a broader suite of print and digital workplace technologies, with significant manufacturing and distribution reach operating 125 facilities across 16 countries.

Xerox expects over $200 million in cost synergies from the acquisition, with immediate accretive impact to earnings and free cash flow. The deal also aims to reduce Xerox's debt leverage ratio to below 3.0x over the medium term. The company's overall business strategy focuses on transitioning from a print-centric model to a services-led, software-enabled organization. This shift includes growth in IT solutions, cloud computing, AI-driven automation, and cybersecurity.

Financially, the acquisition increased Xerox's total debt burden. As of July 1, 2025, Xerox carried a total debt of $4.3 billion, of which $1.6 billion was financing-related debt with a core debt of $2.4 billion. Management positions the core debt to adjusted EBITDA as manageable at 3x but emphasizes the need to reduce debt further in the near future. The debt maturity is well-spread over the next 14 years, with major repayments scheduled between 2028 and 2030.

Free Cash Flow (FCF) per share has been consistent over the last five years, despite a significant drop in stock price. Management is guiding towards $250 million in FCF for 2025 and $400 million in 2026, which is remarkable given the company's current market cap of approximately $500 million.

There has been a spate of insider buying, including by the CEO, CFO, and a director, indicating confidence in the company's future. Additionally, prominent investors such as Steven Cohen, Mario Gabelli, Joel Greenblatt, and Jefferies Group have been adding to their Xerox holdings.

Despite the market's skepticism about the Lexmark acquisition, Xerox's stock price has been trading at levels that offer a high-risk, high-reward opportunity. The company's equity portion of its capital structure is expected to grow as it deleverages. While the uncertainty surrounding this process is high, Xerox's strategic shift towards IT services and digital services positions it to compete more directly with technology companies and adapt to changing market demands beyond traditional printing.

References:
[1] https://www.gurufocus.com/news/3088549/can-xerox-step-back-from-the-brink