HCL makes $1.8 bn bet with IBM software deal
Move implies HCL making its boldest play on proprietary products, services
HCL Technologies Ltd will spend $1.78 billion to buy eight software products from International Business Machines Corp. (IBM), it announced on Friday, unveiling the single-largest acquisition by an Indian information technology (IT) services company and a buyout that is unlike any made by risk-averse home-grown IT firms.
Significantly, the development implies that the billionaire Shiv Nadar-led HCL Tech is making its boldest bet on selling proprietary products and services, as the Noidabased company has spent a total of $3.02 billion in building up its software product business since the firm stitched its first intellectual property (IP) partnership in August 2016.
According to chief executive officer (CEO) C. Vijayakumar, HCL has in the last 28 months spent $1.25 billion in licensing IPS from companies such as IBM and DXC Technology Co, and then building products around them.
Under the all-cash deal, HCL will use $1.475 billion of its own cash and borrow $300 million to finance the transaction, which the management
MINT GRAPHITI expects to close by mid-2019.
HCL expects that the eight software products, such as IBM Notes, Domino and Appscan, will help it garner $625 million in incremental revenue in the 12 months after completion of the deal. In a presentation made to analysts, HCL said these products have a market size of $110 billion and that five of them are notching up double-digit growth.
HCL’S acquisition strategy contrasts that of its rivals in three important ways.
First, its investments are in software products while rivals such as Tata Consultancy Services Ltd, Infosys Ltd and Wipro Ltd continue to strengthen their presence in digital such as buying design studios.
“The $1.8bn deal by HCLT of IBM product is unlike others, given it marks a foray into soft- ware with serious capital commitment,” Kunal Tayal of Bank of America Merrill Lynch wrote in a note on Friday.
Second, there’s the size of the deal. Indian IT firms, true to their DNA, have shied away from spending more than $600 million on any one acquisition.
Finally, HCL continues to be reticent about the details of this transaction and its entire IP partnership. A case in point: The management declines to comment on how much revenue the company has recorded
The government on Friday named Krishnamurthy Subramanian, an associate professor and executive director at the Centre For Analytical Finance at the Indian School of Business (ISB) in Hyderabad, as its next chief economic advisor (CEA) ahead of its final budget to be presented early next year.
Subramanian, 47, specializes in banking, corporate governance and economic policy.
The CEA in the finance ministry is a key contributor to the government’s overall strategy in managing the economy and offers a critique of the hits and misses through the economic survey. Raghuram Rajan, under whose advice Subramanian obtained his PHD in financial economics at the University of Chicago’s Booth School of Business, was the CEA before he became the Reserve Bank of India governor in 2013.
The department of personnel said the appointments committee of the cabinet cleared Subramanian’s appointment for a term of three years. Rajat Kathuria, director and chief executive of the Indian Council for Research on International Economic Relations (Icrier) said Subramanian was a “thoughtful choice” given his educational background and published works. Subramanian’s writings in Mint give a peek into the new CEA’S mind. P20
“For the office of the CEA, the immediate challenges include managing the fiscal deficit, projected at 3.3% for this year, meeting the ₹80,000 crore disinvestment target, recapitalization of banks and tackling the stress in sectors like telecom,” said Kathuria. Creating productive jobs in the economy is a medium-term challenge. Phone calls to Subramanian remained unanswered at the time of publishing.
Subramanian’s appointment comes at a time when the National Democratic Alliance government is expected to outline its vision for further reforms and inclusive growth in the interim budget on 1 February. Although the government has resisted pressure to take populist steps in the past, its final budget before national