HCL Technologies (HCLT.NS) will buy some software assets from US -based IBM Corp (IBM.N) for $1.8 billion, the companies said on Friday, marking the largest purchase ever by an Indian IT services firm.
The company plans to fund the deal - which is expected to close by mid-2019 - through internal accruals and debt of $300 million at close and pay most of the acquisition price after the first year.
This is the biggest acquisition for HCL Tech till date, and among the largest by an Indian tech company.
Both companies appear to have struck this deal in a bid to focus on their core strategies.
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.
The US-based International Business Machines Corp is trying to become a leader in the hybrid cloud computing business.
Notably, IBM itself has recently acquired Red Hat in a whopping $34-billion deal to accelerate its efforts towards open-source software and technology.
The deal will allow IBM to further slim down its legacy businesses as it focuses on cloud computing.
HCL and IBM have an ongoing intellectual property (IP) partnership for five of the products in the deal announced on Friday.
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.
"The products that we are acquiring are in large growing market areas like security, marketing, and commerce, which are strategic segments for HCL", president and CEO of HCL Technologies C Vijayakumar said.
"We continue to see great opportunities in the market to enhance our Mode-3 (Products and Platforms) offerings".
With the acquisition of this software portfolio from IBM, HCL will be able to combine the entrepreneurial capability, speed and performance of a company like HCL with over 100,000 employees worldwide with the software in such a way that will set it apart from its competitors, Oberst said.
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".