HCL Tech to acquire select IBM software products for $1.8 bn; stock down 7%

The stock dipped 7% to Rs 943 on BSE on Friday after the company said it will acquire select IBM software products for $1.8 billion (approximately Rs 127 billion) in an all-cash deal.

Shares of HCL Technologies dipped 6.7% to Rs 943 on BSE in early morning trade on Friday after the company said it will acquire select IBM software products for $1.8 billion (approximately Rs 127 billion) in an all-cash deal.

The company said total investments will be of $1,775 million including earn-out. Approximately, 48% will be paid at close and most of the balance will be paid after the first year. The finance is largely through internal accruals and a debt of $300 million at close.

“IBM and HCL Technologies (HCL) announced a definitive agreement under which HCL Tech will acquire select IBM software products for $1.8 billion. The transaction is expected to close by mid-2019, subject to completion of applicable regulatory reviews,” HCL Technologies said in a press release.

The software products in scope represent a total addressable market of more than $50 billion. The deal entails seven products in areas including security, marketing and collaboration solutions, and represents a total addressable market of more than $50 billion, it added.

HCL said it foresees incremental revenue of about $650 million on a run-rate basis in the second year after the close of the deal. The first year revenue is expected to be about $25 million lower due to transition. The EBITDA margin is expected to be over 50 per cent on a run-rate basis (slightly lower in first year). The deal is expected to be cash earnings per share (EPS) accretive by about 15%.

At 10:04 am, HCL Technologies was trading 6.4 per cent lower at Rs 946.40 on the BSE, as compared to a 0.46% rise in the S&P BSE Sensex. A combined 1.5 million equity shares changed hands on the counter on the BSE and NSE so far.