Narayan AmmachchiIn the largest purchase ever by an Indian IT services firm, HCL Technologies has acquired more than half a dozen software platforms of IBM Corp for US$1.8 billion.
The acquisition adds over 5000 clients to the Indian firm, in addition to strengthening its verticals servicing industries such as commerce, security, and marketing.
HCL says these platforms will pave the way for it to explore a US$50 billion market, but analysts doubt the acquisition will pay off, saying the technology is changing at a rapid pace and anything that looks attractive today may fade away in value as months roll by.
HCL stock value has tumbled more than 10% since the announcement, as investors are worried that the purchase may leave the Indian firm grappling with a cash crunch. Newspapers in India have reported that HCL would borrow US$300 million to fund the purchase.
“The products being acquired were in the middle or end of their life cycles and would likely not show more than a mid-single digit percentage growth,” Reuters reported citing an Indian brokerage firm Axis Capital.
However, in a conference call with investors, HCL CEO Vijayakumar has described the platforms as ‘cash cows’ while conceding that some of them might need to be refurbished with more features.
The software products HCL is taking control of include the following.
- 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.
Interestingly, HCL already has a license agreement with IBM for five of the platforms it has agreed to buy.
Some reports say HCL paid IBM more than US$1 billion for the license two years ago. During the conference call, Vijayakumar refused to clarify whether IBM would give back some of the money it charged HCL for the license.
With operations in more than 40 countries around the world, HCL makes nearly US$8 billion in annual revenue, with IT infrastructure services being its key source of revenue.
“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,” John Kelly, IBM senior vice president of cognitive solutions and research, said in the company’s statement.
The US technology giant is no doubt pouring much of its resources into emerging technologies, including artificial intelligence, hybrid cloud computing, cybersecurity, analytics, and blockchain. IBM has recently sealed a deal to acquire Red Hat, a hybrid cloud services provider, for a staggering US$34 billion.
HCL says the acquired assets will contribute US$625 million to its coffers annually, besides beefing up its ‘as-a-service’ portfolio.
“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,” Vijaykumar said.
“I am confident that these products will see good growth trajectory backed by our commitment to invest in product innovation coupled with our strong client focus and agile product development.”
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