According to a recent report, an Indian multinational technology company, headquartered has agreed to purchase some of an American multinational information technology company’s software assets for US$1.8 billion, making it one of the biggest acquisitions by an Indian IT firm.
India’s third-largest information technology company will be acquiring seven of the American multinational IT firm businesses that are focused on markets, such as e-commerce and human resources, as per a statement by the American IT firm recently. The ‘Big Blue’ wants to focus on cloud computing.
In a related news article, it was reported that the announcement by the Indian tech firm resulted in the firm becoming one of the worst performers among the nation’s top 50 companies.
The shares slid by 5 per cent to 961.95 rupees at the close in Mumbai on a day when the S&P BSE Sensex was the biggest gainer among Asian benchmark equity gauges. The decline was the steepest in seven weeks.
The Indian tech firm is buying seven products, including Connections that enables streaming from social networks, document authorization, reporting expenses and reviewing emails. The planned purchase – the biggest by an Indian software maker – has had some investors questioning the price tag in relation to the assets’ return potential.
The head of equity research at Mumbai-based equities firm noted that the market is grappling with the question of whether the Indian tech firm has bitten too much, too early with this deal. It was noted that this is a bet the company is taking as a new source of growth, but this revenue stream isn’t going to deliver great return ratios.
It was also reported that the Indian tech firm will borrow US$300 million to fund the deal, while the remainder will come through its profits. The transaction is expected to close by mid-2019, according to a statement.
An analyst at a securities firm noted that the market is divided on whether it is a good thing to get into an intellectual property business, which has inherent risks and volatility. It was stated that post this deal, the IP business will contribute roughly 20 per cent to the Indian tech firm’s revenue from the current 12 per cent.
The deal will help the Indian tech firm acquire 5,000 customers, a task that would have otherwise taken two decades, the company’s Chief Executive Officer said on a conference call with investors.
An existing licensing pact between the two companies will continue for five of the products – a mix of products –some of them are cash cows and some of them will keep growing and some of the products will need some infusion of fresh life to allow them to grow faster.
The asset-sale comes as the American tech firm is seeking to become a leader in the hybrid cloud market, which combines software and services delivered over the public Internet with similar offerings run on companies’ own servers and data centres.
In October 2018, the Armonk, New York-based company agreed to but another smaller tech firm for US$33 billion. The firm is a specialist in this area.
According to another report, the products are Unica for marketing automation, Appscan for secure application development, BigFix for secure device management, Commerce for omnichannel eCommerce, Portal for digital experience, Connections for workstream collaboration, and Notes & Domino for email and low-code rapid application development.
A senior vice president at the American tech firm stated that the time is right to divest these select collaboration, marketing and commerce software assets, which are increasingly delivered as stand-alone products. He added that the transaction is expected to be completed by mid-2019 and their existing licensed partnership for five products will continue.
