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HCL to acquire IBM software assets for $1.8 bn in biggest Indian IT deal
Photo Credit: VCCircle

Armonk-headquartered tech giant IBM on Friday said that it was selling off select software businesses to Noida-headquartered IT services firm HCL Technologies for a whopping $1.8 billion (around Rs 12,800 crore at current exchange rates).

HCL Technologies said in a statement that the transaction is expected to close by mid-2019. The acquisition, if completed, will be the largest-ever by an Indian technology company, according to Refinitiv data.

“We continue to see great opportunities in the market to enhance our Mode-3 (Products and Platforms) offerings. 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 chief executive, HCL Technologies.

He further added that these products will be combined with the company’s Mode-1 and Mode-2 services and their large-scale deployments will serve global enterprises across a wide range of industries and markets.

HCL's share price was down 7% in early trade on the Bombay Stock Exchange.

An IBM spokesperson told TechCircle that the current divestment is not related to their $34-billion acquisition of US software company Red Hat, which it announced recently.

The select IBM products, which the company claims have an addressable market of over $50 billion, include secure application development platform Appscam, secure device management solution BigFix, marketing automation product for on-premise called Unica, on-premise omnichannel eCommerce solution called Commerce, digital experience solution called Portal, workstream collaboration platform called Connections and email-based, low-code application development platform called Notes & Domino.

Last year in December, HCL and IBM had entered into an intellectual property partnership worth $850 million to expand revenue streams. The companies have an ongoing IP partnership for five of these products although it didn’t identify them. 

While the firms had paid $660 million at the time, the remaining amount was expected to be paid during the next three to four quarters, the companies had said in a statement then.

According to the terms and conditions of the $850-million IP deal, IBM’s DevOps and automation divisions would continue to sell the products while HCL would develop them for a 15-year period.

However, it is not immediately clear why IBM is selling off the products just one year after the IP partnership, though HCL Technologies was developing these applications.

According to John Kelly, IBM’s senior vice president of cognitive solutions and research, the Big Blue will focus its investments on developing integrated capabilities in areas such as artificial intelligence for business, hybrid cloud, cybersecurity, analytics, supply chain and blockchain as well as industry-specific platforms and solutions including healthcare, industrial Internet of Things and financial services. 

“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,” Kelly said.

HCL Technologies operates in 43 countries and has consolidated revenues of $8.2 billion for the quarter ended 30 September 2018. 

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