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DXC Divests Healthcare Software Unit, Streamlines Business

DXC Technology DXC yesterday announced that it has agreed to sell its healthcare software provider business unit to privately-held Dedalus Group for a total cash consideration of $525 million. The transaction is anticipated to complete by March 2021.

DXC’s innovative healthcare software give clinicians and caregivers the tools they need to improve processes across the continuum of care. The company’s technology solutions provide tools to healthcare providers to better connect with their patients, which helps them boost productivity and patient outcomes.

The latest divestment can be seen as part of DXC’s strategy to offload non-core assets. Notably, the IT and consulting services provider announced last November that it is exploring options to divest three of its non-core businesses, including the State and Local HHS business, the horizontal BPS business and the workplace and mobility business. The three units account for about 25% of DXC’s total revenues, on a combined basis.

In this regard, the company, this March, found a buyer for the State and Local HHS business. Private equity firm Veritas Capital has agreed to buy the unit for $5 billion. The transaction is anticipated to close by December 2020.

DXC Technology Company. Price and Consensus

DXC Technology Company. Price and Consensus

DXC Technology Company. price-consensus-chart | DXC Technology Company. Quote

Asset Divestments to Help DXC Reduce Debt

DXC was formed in 2017 by the merger of Computer Sciences Corp. and the enterprise services unit of Hewlett Packard Enterprise HPE. CSC, prior to the completion of the merger, took additional debt. This has amplified DXC’s total long-term liability, thereby increasing its interest-cost burden.

As of Mar 31, 2020, DXC’s balance sheet had only $3.68 billion in cash and cash equivalents, while long-term debt outstanding (net of current maturities) was $8.67 billion.

By spinning off certain assets from time to time, the company aims to pay off its debt in parts. It is aiming to reduce debt by more than $2.5 billion with the spin-offs of its three aforementioned businesses.

Focus on Core Businesses

Spinning off non-core assets improves DXC’s focus on its core businesses. Also, it enhances the firm’s ability to execute acquisitions strategies across high-growth businesses, including enterprise software-as-a-service, technology security solutions, and autonomous driving.

Last August, the company acquired independent service management and security solutions provider — Syscom. The acquisition of the leading ServiceNow NOW partner is helping DXC strengthen its position as a leading ServiceNow solutions provider across the Nordics region.

Furthermore, this April, the company’s digital strategy and software engineering arm, Luxoft, completed the acquisition of mobility systems developer, CMORE Automotive. The acquisition will help DXC Technology enhance its capabilities in the Autonomous Drive/Advanced Driver Assistance Systems (AD/ADAS) space.

DXC currently carries a Zacks Rank #5 (Strong Sell).

A better-ranked stock in the broader technology sector is Fortinet FTNT, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The long-term earnings growth rate for Fortinet is currently pegged at 14%.

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