How HCL's $1.8B deal with IBM will help the IT services firm

▤ Summary

HCL Technologies has taken its boldest bet ever by acquiring seven software products from IBM for $1.8 billion , the biggest acquisition by an Indian IT services company that is intent on boosting revenue growth in emerging areas such as digital and cloud computing.Higher investments in IPs as well as acquisitions is weighing on free cash flow trajectory,” said Madhu Babu, IT analyst at brokerage Prabhudas Lilladher.“This portfolio can give more than 50% operating margin (Ebitda) and $300 million annual free cash flow in the first few years,” said Kuldeep Kaul, IT analyst at brokerage ICICI Securities.On balance, it is still a growth portfolio and synergies will take longer,” he added.Shiv Nadar-owned HCL has been on an acquisition spree, snapping up companies such as Axon Plc , the UK SAP implementation provider, local engineering services firm Geometric and US-based Actian that helps clients shift IT infrastructure to cloud.“By taking over some of the legacy technology products and infrastructure management-related work from IBM, they tend to stay ahead of competition when the same clients go for digital transformation,” said Rajesh Gupta, senior IT sector analyst and former partner with ISG.

▦ Linked Companies

IBM

$1B+