HCL to buy Volvo’s IT business for $138M
Other | Photo Credit: Reuters

India's fourth-largest software services firm HCL Technologies has inked a deal to take over Swedish automobiles maker Volvo’s external IT business for SEK 1.1 billion ($138 million or nearly Rs 900 crore) in an all-cash deal.

HCL, in a stock market filing, said that Volvo Group will also outsource its own IT infrastructure operations as part of the agreement with a five-year contract.

Volvo garnered revenues of SEK 1.6 billion ($190 million) from external customers through its IT business during the last 12 months. This unit offers services related to IT infrastructure, mainframe services and application operation services to third-party clients. It employs 2,600 people globally.

In April, the Volvo Group announced its intention to find an external partner to assume responsibility for its external IT business and its own IT infrastructure operations. The transaction is part of the efficiency programme announced previously, which aims to reduce the automaker's structural costs.

“This has been a thorough process and I am pleased with the outcome. Not only will our cooperation with HCL Technologies provide significant cost-savings. We will also make a capital gain when the contract is signed,” Jan Gurander, Volvo’s CFO and acting president and CEO, said.

The transaction is to be closed during the second quarter of 2016.

In an unrelated deal, in June, the Swedish automaker had exited Indian commercial vehicles company Eicher Motors Ltd by selling its remaining 3.7 per cent holding in the firm for about Rs 1,730 crore (approximately $270 million). This divestment, however, did not affect the separate joint venture between Volvo and Eicher Motors – VE Commercial Vehicles Ltd.

Meanwhile, the latest deal between Volvo and HCL is one of several such cases where an Indian IT services firm took over captive back office operations of MNCs. Last year, Wipro Ltd acquired ATCO I-Tek, an IT business of Canadian firm ATCO for $195 million in an all-cash transaction.

HCL itself has done some such deals in the past including one involving a unit of Citigroup. However, this is its biggest acquisition move in seven years. In 2008, it had pipped Infosys to acquire UK-based SAP software consultant Axon Group Plc for a mega deal. This remains, to date, the single-largest acquisition by an Indian IT firm.

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