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HCL Technology stock surges after announcement of IBM deal


Devdiscourse News Desk new delhi Last Updated at 07-12-2018 20:04:52 IST India
HCL Technology stock surges after announcement of IBM deal
  • The transaction is subject to "completion of applicable regulatory reviews", HCL Technologies said in a statement.

HCL Technologies Friday said it will acquire select IBM software products for USD 1.8 billion (over Rs 12,700 crore) in an all-cash deal that represents the largest purchase by an Indian IT services company till date.

The transaction outlines HCL Tech's bold bet in software products business -- considered a holy grail for IT companies -- and is slated to close by mid-2019.

The transaction is subject to "completion of applicable regulatory reviews", HCL Technologies said in a statement.

The deal entails seven products in areas including security, marketing and collaboration solutions, and represents a total addressable market of more than USD 50 billion, HCL Tech said in a regulatory filing.

The deal will arm HCL with incremental revenue to the tune of USD 650 million in the second year of the acquisition (on a run-rate basis) but the first year realisations are expected to be USD 25 million lower "due to transition", the company explained in a presentation to investors and analysts.

"IBM and HCL Technologies today announced a definitive agreement under which HCL will acquire select IBM software products for USD 1.8 billion," HCL said in its statement.

With this acquisition, HCL Tech will get software products in areas of marketing, commerce, security and collaboration, a "highly profitable revenue stream" containing a significant annuity component, and access to over 5,000 large clients across industries and geographic markets, along with sales and marketing teams, it said.

HCL Tech Chief Financial Officer Prateek Aggarwal told PTI that the deal also entails the transfer of IBM employees, but did not divulge any numbers.

The cash deal will be funded largely through internal accruals, with USD 300 million of debt, HCL Tech said, adding that nearly half of the total amount will be paid at the close of the deal. The sheer size of HCL's latest purchase is almost 21.9 per cent of its consolidated annualised revenues of USD 8.2 billion.

This is the biggest acquisition for HCL Tech till date, and the largest ever by an Indian tech company. The acquisition also reflects HCL's larger ambitions for software products business that is seen as the next growth engine for homegrown tech giants.

The software products in the deal include Appscan (for secure application development), BigFix (for secure device management), Unica (for marketing automation), Commerce (for omnichannel e-commerce), Portal (for digital experience), Notes & Domino (for e-mail and low-code rapid application development), and Connections (for workstream collaboration).

HCL and IBM have an ongoing intellectual property partnership for five of these products.

"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," said C Vijayakumar, president and CEO, HCL Technologies.

John Kelly, IBM senior vice president, Cognitive Solutions and Research, said: "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."

Shares of HCL Technologies took a knock of 5 per cent on Friday after the company announced the acquisition. The stock dropped 4.98 per cent to close at Rs 961.55 on BSE. Intra-day, the scrip had hit a low of Rs 935, down 7.6 per cent.

(With inputs from agencies.)


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