HCL Technologies believes the $1.8-billion acquisition of seven IBM software products, five of them with existing intellectual property (IP) partnerships, will help the company break into the software products segment and deepen engagement with customers, CEO C VIjayakumar told ET in an interview. 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, we already have partnerships in five products. 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, have good recognition in the market and 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 along with direct client access. 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 perspective 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, the 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, where they have partner ecosystems which we have the ability to tap into. This means a lot of new opportunities for us — for products as well as additional services. And we definitely see a lot of synergies in a lot of areas such as marketing and commerce.
How will you fund the acquisition?
This will be largely funded through internal accruals. Of the $1,775 million, 48% is due to be paid at the time of close, which we expect in the middle of 2019. By that time, we should have that much cash because some of it is locked away in long-term fixed deposits. So, we will have to borrow $300 million.
Source: Economic Times