HCL Technologies Ltd. on Friday, Dec. 7, said it had agreed to acquire a portfolio of software products from International Business Machines Corp. (IBM - Get Report) for $1.78 billion, in a deal the Indian buyer said was in market segments it considered strategic.
Noida, India-based HCL said it was buying seven software products with a total addressable market of more than $50 billion, in the marketing, commerce, security and collaboration segments. The sales and marketing teams will transfer to HCL, which will borrow $300 million to fund the acquisition.
The products are AppScan, a technology for secure application development; BigFix which offers secure device management; marketing automation application, Unica; omni-channel eCommerce software Commerce; digital experience application Portal; email and low-code rapid application development software Notes/Domino; and workstream collaboration technology Connections.
An existing intellectual property licensing partnership with IBM for five of the products will remain in force, said HCL, which is also acquiring the Software-as-a-Service hosting and operations infrastructure for Collaborations and AppScan.
In a statement, HCL CEO C. Vijaykumar said: "The large-scale deployments of these products provide us with a great opportunity to reach and serve thousands of global enterprises across a wide range of industries and markets."
Vijaykumar later reportedly told investors on a conference call that the deal will help the company acquire 5,000 additional large clients, saying that it would have taken two decades to have grown its customer base that much organically.
"It's a mix of products, some of them are cash cows and some of them will keep growing," Vijayakumar said.
But in an acknowledgement that may have contributed to the market's less than enthusiastic reception for the deal, he also told investors: "Some of the products will need some infusion of fresh life to allow them to grow faster."
The deal is expected to close in mid-2019, subject to Hart-Scott-Rodino antitrust approval, clearance by the Committee on Foreign Investment in the U.S. and approval under the Indian Foreign Exchange Management Act. The purchase price includes an element of earn-out, the buyer said.
Armonk, N.Y.-based IBM said it was selling the seven software applications now as it is focusing on developing higher value products, a trend demonstrated by its recent blockbuster purchase of Red Hat Inc. in a cloud computing deal worth $34 billion.
"Over the last four years, we have been prioritizing our investments to develop integrated capabilities in areas such as AI for business, hybrid cloud, cybersecurity, analytics, supply chain and blockchain as well as industry-specific platforms and solutions including healthcare, industrial IOT, and financial services," said IBM senior vice president for Cognitive Solutions and Research John Kelly, in a statement. "These are among the emerging, high-value segments of the IT industry.
"We believe the time is right to divest these select collaboration, marketing and commerce software assets, which are increasingly delivered as stand-alone products," Kelly added saying the technologies were a good strategic fit for HCL, which was well positioned to drive innovation and growth in the assets it was purchasing.
The deal is expected to close in mid-2019, with the option of delaying closing by a further quarter on two out of seven items.
HCL operates out of 43 countries and generated consolidated revenues of US$ 8.2 billion in the year to Sept. 30, 2018.