In a regulatory filing HCL Technologies Ltd., an Indian MNC founded by billionaire Shiv Nadar’s family, has announced acquisition of several IBM software products for $1.8 billion.
The all cash deal is the biggest acquisition ever by HCL and among the biggest in the technology industry. HCL will borrow $300 million to fund the deal, which is expected to close around mid 2019.
HCL further mentioned that the seven software products are in the areas of marketing, security, & collaboration solutions. The purchase includes IBM Connections that enables streaming from social networks, document authorization, blogging, bookmarking, reporting expenses and reviewing emails etc for enterprises.
The software products represent a total addressable market of more than USD 50 billion, HCL said in the filing. Apart from Connections, the other IBM software products bought by HCL include Appscan for Secure application development, BigFix for Secure device management, Unica for marketing campaigns, Commerce for ecommerce development, Portal for digital experience, Notes & Domino for email & rapid application development.
The market’s initial response hasn’t been buoyant for HCL. The HCL shares slid 5 percent at the close of the day at BSE Sensex. Some investors questioned the price tag and the return potential of IBM assets which were acquired by HCL.
However, C. Vijayakumar , CEO HCL, remarked, “The deal will help HCL acquire 5,000 customers, a task that would have otherwise taken two decades.”
“It’s a mix of products, some of them are cash cows and some of them will keep growing,” Vijayakumar said. “Some of the products will need some infusion of fresh life to allow them to grow faster.”
As per a market analyst, “Post this deal, the IP business will contribute roughly 20 percent to HCL’s revenue from the current 12 percent.”
The software products are highly scalable and a lucrative investment opportunity for technology firms. The profits from HCL will be invested to buy the IBM software products. The intellectual property and software assets are breeding ground for investors.
HCL with its proven expertise in IT services, consulting and implementation will be looking to make the most of this acquisition. With the push for software products and services on the cloud, scaling up to serve a global market has become more feasible than ever before.
The acquisition of IBM assets also augurs well for the Indian software products and services market. The software industry in India is growing at a rapid clip, despite many predictions of its growth stalling. The traditional services companies are reinventing themselves with digital capabilities.
The software revenues touched $160 billion in 2017-18 and will continue to grow at 8-9% according to NASSCOM. The Indian software industry is expected to achieve a revenue target of USD 350 billion by 2025 as per NASSCOM.
The HCL acquisition is a reflection of the growing clout of software products business in India. The software services companies in India are also looking at software products and digital business opportunities as the next growth frontier. The Indian software industry offers an unmatched value proposition & would be expected to continue on its growth trajectory.
The era of digital businesses is putting pressure on traditional IT services companies. So, they are looking at good software & digital products for diversifying their business. The digital products are typically SaaS products accessed by customers over internet, which provide scalable and fast growing business opportunities for companies.
