Wednesday, 19 December, 2018

IBM to sell some of its software business to HCL

IBM HCL logos Representational image
Priscilla Morrison | 09 December, 2018, 00:44

Indian IT major HCL Technologies has announced that it is acquiring a large part of IBM's software portfoliofor about US$1.8 billion.

The HCL-IBM deal, which accounts for almost 22% of HCL Tech's annualized revenue, is expected to close by mid-2019, subject to completion of applicable regulatory reviews.

The US-based International Business Machines Corp is trying to become a leader in the hybrid cloud computing business. "In addition, we see tremendous potential for creating compelling "as-a-service" offerings by combining these products with our Mode-1 and Mode-2 services", he added.

IBM is also in the process of buying USA software company Red Hat Inc for $34 billion, including debt.

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.

Terms of the deal - unveiled following a weekend of media speculation - will see Big Blue acquire all of the issued and outstanding common shares of Red Hat for US$190.00 per share in cash, in an agreement expected to be finalised in the second half of 2019.

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India-headquartered HCL Technologies and IBM have an ongoing IP partnership for five of the seven products.

For HCL, the software being acquired is expected to give the company a lift in fast-growing security, marketing and commerce, all of which are strategic to the company, said C Vijayakumar, the company's president and CEO, in a statement.

HCL's so-called Mode 1 refers to its application, development and maintenance (ADM) and infrastructure services. The acquisition also reflects HCL's ambitions for software products business - considered to be the next growth frontier for IT companies.

Gogia argues that most of the products in the HCL-IBM deal have been sold "as part of a large Strategic Outsourcing or a Managed Services deal and not as independent products".

"As many of these products are well regarded by clients and industry analysts, we see a good growth trajectory for them, as we are committed to invest in their innovation and further development", said Vijayakumar. The company is also expecting that the deal will add $650 million annually to its existing business ($625 million in the first year of completion).

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