HCL Technologies to acquire select IBM products for $1.8 bn

Segments include security, marketing

HCL Technologies on Friday said it will acquire select software products from IBM in areas such as security and marketing, for $1.8 billion — one of the biggest acquisitions by an Indian IT firm.

“The products that we are acquiring are in large growing market areas like security, marketing and commerce, which are strategic segments for HCL. Many of these products are well-regarded by clients and positioned in the top quadrant by industry analysts,” HCL Technologies president & CEO C. Vijayakumar said.

$50-billion market

The products that HCL Technologies is buying represent a total addressable market of more than $50 billion, the company said. These 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 work stream collaboration.

The acquisition is financed largely through internal accruals and a debt of $300 million. Approximately 48% of the total buyout amount will be paid at the close of the transaction, while most of the balance will be paid after year one. The transaction is expected to be completed by mid-2019, subject to completion of applicable regulatory reviews.

On the outlook, the company said, it expected an incremental revenue of $650 million on a run-rate basis in year two after close, while in year one, the same is expected to be $25 million lower due to transition.

However, the company scrip closed nearly 5% down at ₹961.55 per share on the BSE.

Mr. Vijayakumar added, “The large-scale deployments of these products provide us with a great opportunity to reach and serve thousands of global enterprises across a wide range of industries and markets.”

“The deal demonstrates HCL Technologies’ aggressive focus on transition to platform and product-led solutions. While it provides a strong product portfolio, enhances cross-selling opportunities and geographical reach in Mode-1 services, total investment of $3 billion in IBM products appears high, especially due to limited information on revenue cannibalisation and amortisation,” Edelweiss Research said in a statement.

HCL Technologies had already signed IP-partnership for five of the acquired products over the past two years for $1.2 billion, Edelweiss Research added.

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