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Last Updated : Dec 07, 2018 04:14 PM IST | Source: Reuters

HCL Technologies to buy some IBM products for $1.8 bln

Unlike its rivals, HCL Technologies has made a huge bet on selling products and platforms.

Neha Alawadhi @alnehaa
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India's third-largest information technology services company HCL Technologies said on December 7 it will buy some IBM products for $1.8 billion, making it one of the largest acquisitions by an Indian IT firm in recent times.

The software products in scope represent a total addressable market of more than $50 billion, the company said in a statement.

The transaction is expected to close by mid-2019.


The products include Appscan for secure application development, BigFix for secure device management, Unica (on-premise) for marketing automation, Commerce (on-premise) for omni-channel eCommerce, Portal (on-premise) for digital experience, Notes & Domino for email and low-code rapid application development, and Connections for workstream collaboration.

HCL and IBM have an ongoing IP Partnership for five of these products.

"We continue to see great opportunities in the market to enhance our Mode-3 (Products and Platforms) offerings. The products that we are acquiring are in large growing market areas like Security, Marketing and Commerce which are strategic segments for HCL," said C Vijayakumar, President & CEO, HCL Technologies in a statement.

HCL said it foresees incremental revenue of about $650 million on a run-rate basis in the second year after the close of the deal. The first year revenue is expected to be about $25 million lower due to transition. The EBITDA margin is expected to be over 50 percent on a run-rate basis (slightly lower in Y1). The deal is expected to be cash earnings per share accretive by about 15 percent.

Unlike its rivals, HCL Technologies has made a huge bet on selling products and platforms.

"This is a major step forward for us...we’re taking over the sales and marketing side of the product roadmap (of the acquired products)," HCL Technologies CFO Prateek Aggarwal told Moneycontrol.

Vijayakumar has said earlier that the company is building intellectual property in IT services or engineering services, which have been launched as standalone offerings, strategic IP-led partnerships, and acquisitions.

HCL Technologies' head of products and platforms Darren Oberst said the firm is a "services company at our heart" and the acquisition is part of the next steps it is pursuing as part of its strategy.

Among its over $1 billion IP-led partnerships, the largest one HCL has is with IBM, a 15-year engagement for automation and DevOps solutions.

"Over the last four years, we have been prioritizing our investments to develop integrated capabilities in areas such as AI for business, hybrid cloud, cybersecurity, analytics, supply chain and blockchain as well as industry-specific platforms and solutions including healthcare, industrial IOT, and financial services. These are among the emerging, high-value segments of the IT industry. As a result, IBM is a leader in these segments today," said John Kelly, IBM senior vice president, Cognitive Solutions and Research.

IBM has also seen slow software sales, which have impacted results. The technology giant is also in the process of acquiring open software firm Red Hat for $34 billion, including debt.

"We believe the time is right to divest these select collaboration, marketing and commerce software assets, which are increasingly delivered as stand-alone products. At the same time, we believe these products are a strong strategic fit for HCL, and that HCL is well positioned to drive innovation and growth for their customers," added Kelly.

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First Published on Dec 7, 2018 08:03 am
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