‘IBM Deal Gives HCL a $50-b Opportunity’
HCL Technologies believes the $1.8-billion acquisition of seven IBM software products, five of them with existing intellectual property partnerships, will help the company break into the software products segment and deepen engagement with customers, CEO C VIjayakumar told Surabhi Agarwal . Edited excerpts:
What was the big idea behind such a massive acquisition?
As part of this deal we are acquiring seven products from IBM, in areas such as marketing, commerce, security and collaboration. Of the seven products, in five products we already have partnerships. Overall, these areas, especially security, commerce and marketing, are significant growth markets and there is a $50 billion market opportunity. It is of great interest to HCL, especially for our digital and other programmes.
The products are good; they have got good recognition in the market and they have good installed base across the globe in a wide range of industries and many geographic markets. And because we have existing IP partnerships, we are also confident of what we can do with the products.
What sparked this acquisition when you already had a joint go-to market deal with IBM?
Of course, at this point, as an IP partnership we are adding a lot of value to these products. So, it will be in our own interest to gain the entire revenue stream and direct client access, and also the contract directly with the client. So it’s a huge step forward from the IP partnership perspective.
Once the acquisition is completed, how much will it add to HCL’s balance sheet?
As we have mentioned, in at least five of these seven products we already have IP partnerships and the revenue is already there in our P&L. The incremental revenue that we expect to get from these products on an annual run rate perspec- tive is $650 million in year two after the consummation of the deal. (Revenue) in year one will be a little less due to transitioning of the client contracts.
How much are the IP partnerships contributing right now?
What I mentioned were incremental revenues; currently we have not called out product-wise revenues.
In terms of client profiles, what kind of companies are these? Will there be cross-selling opportunities?
They have a world-class customer base. While the core of these products are in markets which are strongholds for HCL in North America, UK and Australia, there is also a very large customer base and access in Germany, Japan and China, across Europe, South America, across Middle East, etc., where they have partner ecosystems which we have the ability to tap into.