Indian-based IT giant HCL technologies have announced that they will be acquiring eight IBM software products for USD 1.8 billion in a part-cash part-debt deal. As per the terms of the deal, HCL will utilise USD 1.447 billion of its own cash and borrow the remaining USD 300 million to finance the transaction which will close by mid-2019.
According to HCL, enterprises of all shapes and sizes globally are expanding their IT prowess which includes the cloud, AI, ML, IoT, cybersecurity, blockchain, etc. They say that these markets are touted to grow in the coming years and leveraging this growing trend is a beneficial opportunity.
With this deal, HCL say that they will be adding eight software products such as IBM notes, Domino and Appscan which will help them garner USD 625 million in incremental revenue in a matter of 12 months after the deal. They also say that these products alone have a market size of USD 110 billion whereas, the other three are close to double-digit growth.
Explaining the strategic move, HCL say that this deal will help them differentiate from their rivals TCS in three different ways, which are:
1. HCL invested in software products, whereas TCS and Wipro are strengthening their digital presence with design studio acquisition,
2. The investment of USD 1.8 billion is staggering as opposed to the investments made by HCL’s rivals that are not more than USD 600 million. This will allow them to entice more investors from global markets since it shows that HCL are serious about their plans, and
3. HCL have taken a consolidation approach which will position them as a go-to-software provider, instead of single software suppliers
Speaking about the move, C Vijayakumar, President & CEO, HCL Technologies said that the acquisition of eight IBM software products will allow them to serve thousands of global enterprises across a wide range of markets and industries. However, industry analysts are critical about this aggressive M&A strategy, stating that this could be a clever way of covering a lack of organic growth within the business.
It will be interesting to see what happens in the next 2-3 years at HCL’s end post this acquisition, following their partnership with Siemens for IoT.