International Business Machines Corp (IBM) has agreed to sell some of its software assets to software company, HCL Technologies (HCLT.NS) for $1.8 billion (1.4 billion pounds). This acquisition will help HCL compete better with competitors like TCS and Infosys Ltd.techn
Some analysts however, have criticised the “supposed largest-ever” acquisition by HCL. They maintained that the deal did not “make sense” for HCL in the long term because of its existing partnership with IBM and that the gains from the deal did not justify the price at all.
While speaking to Reuters, Sudheer Guntupalli, a technology sector analyst with Ambit Capital in Mumbai said, “I don’t think it will help HCL on a long-term basis … this deal is a negative from HCL’s standpoint.”
“They already have IT partnerships for five of the seven products in the deal. So, there would hardly be any incremental benefits on a qualitative basis,” he said, adding that it did not make sense for HCL to rely so heavily on a single vendor’s software when rivals have remained technology agnostic.
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IBM has been affected with slowing software sales and wavering demand for mainframe servers, making a turnaround difficult. But this deal will allow IBM to further slim down its legacy businesses as it focuses on cloud computing.
It will sell out its seven products including its secure-device management product BigFix, marketing automation software Unica and workstream collaboration product Connections.
HCL also stated that the acquisition will give it scale in areas like retail, financial services and transportation. It will add about $650 million in revenue on a run-rate basis in the second year after closing and increase cash earnings by about 15 percent. The transaction is expected to close by mid-2019.