Indian IT Sector Lessons From USD 1.8-Bn HCL-IBM Deal
India’s IT Industry is witnessing a major transformation. The rapid changes in the global political and economic scenario, alongside changing technology and market dynamics is driving the technology leaders’ adaptation to changes, especially among the top technology players.
The country’s third largest software services firm HCL Technologies has announced that it is acquiring select IBM software products for $1.8 billion. The acquisition which is the largest in the history of HCL, is expected to close by mid-2019. The products which represent a total addressable market of more than $50 billion include, Appscan for secure application development, BigFix for secure device management, Unica for marketing automation, Commerce for omni-channel eCommerce, Portal for digital experience, Notes & Domino for email and low-code rapid application development, and Connections for workstream collaboration.
“We continue to see great opportunities in the market to enhance our Mode-3 (Products and Platforms) offerings. The products that we are acquiring are in large growing market areas like Security, Marketing and Commerce which are strategic segments for HCL. Many of these products are well regarded by clients and positioned in the top quadrant by industry analysts,” said C Vijayakumar, President & CEO, HCL Technologies.
According to him, “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. I am confident that these products will see good growth trajectory backed by our commitment to invest in product innovation coupled with our strong client focus and agile product development. 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”.
MarketsandMarkets believes that IBM’s urge to become a leader in the hybrid cloud market, which is the future of majority of top 10 firms in every market segment, is clearly visible through its Red Hat acquisition and divestment of legacy stand-alone products. On the contrary, HCL’s aim to move away from labor-intensive software services business to IP-driven business is backed the USD 1.8-billion acquisition of 7 IBM IPs.
IBM’s old revenue mix has become HCL’s new revenue mix. The IBM–HCL deal seems to have similarities with the IBM–Lenovo deal done in the past; for Lenovo, it was hardware; whereas for HCL, it is software product assets /IPs from IBM.
HCL’s acquisition of select IBM IPs / products through a transitional mode is a strategic move for gaining control over the nuances prior to adding them to its portfolio. HCL’s relationship with IBM as a development partner for 5 of the 7 acquired products should have equipped HCL with know-hows and better visibility on monetizing the acquired assets. It is a win-win deal for both IBM and HCL as their long-term relationship will continue, in which, both the companies will sell each other’s technologies.
“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. These are among the emerging, high-value segments of the IT industry. As a result, IBM is a leader in these segments today,” said John Kelly, IBM senior vice president, Cognitive Solutions and Research.
“We believe the time is right to divest these select collaboration, marketing and commerce software assets, which are increasingly delivered as stand-alone products. At the same time, we believe these products are a strong strategic fit.
In recent years Indian IT majors have been on an acquisition spree. In 2016, Wipro bought US-based healthcare technology services firm HealthPlan Services for $460 million. The IT firm also bought Cellent AG, a German technology company that implements and maintains SAP for $78 million and Denmark-based Designit for $95 million to strengthen its presence in the digital space in the subsequent years.
Infosys’ $200-million acquisition of Israeli software firm Panaya in 2015 is in controversary. But that too doesn’t deter Infosys from making acquisition plans. CEO Salil Parekh recently said that the mergers and acquisitions team at Infosys was evaluating a “shortlist of 15-20 companies and expects to close some of its major deals over the next 12-24 months.”
Infosys sees “huge appetite” for cloud-based, software-as-a-service, data analytics, user experience, cybersecurity and Internet of Things (IoT) based companies. After Parekh’s joining in January, made two acquisitions - US-based creative and consumer insights agency Wongdoody and more recently Fluido, a Salesforce advisor and consulting partner in Nordics.
Cognizant announced its buyout of SaaSfocus, a consulting firm that specialises in developing software based on Salesforce technologies, and strengthen its business proposition in Asia-Pacific. buy privately-held digital engineering and consulting company, Softvision for an undisclosed amount. The deal is expected to close in the fourth quarter of 2018.
Further, accretive acquisitions such as the Adaptra, TriZetto, Bolder Healthcare, Mirabeau BV, and the technology and business process services unit of Frontica Business Solutions AS are benefiting the company. Cognizant has not only gained new customers from these buyouts but also expanded its digital delivery capabilities. Most recently, Cognizant announced the acquisition of Advanced Technology Group (ATG), which has deep Quote-to-Cash (Q2C) domain expertise and offers extensive Salesforce CRM based CPQ and Billing solutions. The acquisition strengthens Cognizant’s cloud solutions portfolio.
Last month, TCS, the company that is most conservative in the areas of buyout has made its first digital acquisition with design studio W12. That was the tech leader’s first digital buyout that should help the country’s most valuable company get a bigger share of the global digital marketing spend.
Needless to mention, India’s $150 billion legacy IT services industry is banking on buyouts to give it a fresh lease of life. The industry, whose model has increasingly been rendered obsolete over the past few years by the emergence of new technologies, is making acquisitions and investments in areas like automation, artificial intelligence, and big data to stay ahead of the more agile startups.
Taking all these points into stride, one can say that having a foresight on a new revenue mix and enhancing the company’s relevancy are the key to survive for any company in the fast-changing technology world. This belief is reflected in the M&A strategies of IBM and HCL and is likely to be seen in the IT industry in the coming months.
- Study Highlights Widening Skill Gap In Indian IT Industry
- 6 Predictions For Surveillance Industry In 2019
- Making Data Hyper-Available To The Multi-Cloud Enterprise
- Smart Speaker Usage Booming in India, Says Study
- What Makes The Smart Home Market So Lucrative In India
- Would Cyber Serenity Soon Be A Thing Of The Past?
- Will Cyber Serenity Soon Be a Thing of the Past?
- Editor's Pick: CXOToday's Top Tech Stories Of 2018
- At SAP, We Co-Innovate With Our Customers
- Technology Outlook For 2019: What Experts Are Saying