On December 6, 2018, HCL announced it had acquired seven IBM products across security, commerce, and marketing for a record US$1.8 billion. To provide a financial context to this acquisition: HCL, India’s third largest IT services provider, invested about 22 percent of its annual revenue to bolster its products and platforms portfolio – what it refers to as its Mode 3 portfolio – which barely contributes to 10 percent of its annual revenue.
What strategic outcomes could HCL potentially derive from this deal?
At first glance, the acquisition may seem to be a strategic fit for HCL. But when we dug deeper, we observed that while some of the IP plugs gaps in HCL’s portfolio, others don’t necessarily enhance the company’s overall capabilities.
This analysis raises meaningful questions that indicate there are potential potholes that challenge its success:
The acquisition definitely is a bold move by HCL, which may seem meaningful from an overall financial investment and ROI perspective. However, the subdued investor confidence reflects poor market sentiment, at least at the start. Although this could be considered a short-term consequence, HCL’s investments in these legacy products is in stark contrast to the way the rest of industry is moving forward.
On the day of the acquisition, HCL’s stock price fell 7.8 percent, signaling negative market sentiments and thumbs down from analysts. In contrast, the market behaved differently in response to acquisitions by HCL’s peers in the recent past.
To prove the market wrong, HCL needs to focus its efforts on developing and innovating on top of these products; developing synergies with its ADM, infrastructure, and digital services; alleviating client apprehensions; and providing a well-defined roadmap on how it plans to sustain momentum leveraging these products over the long term.
Thursday, October 25, 2018 | 2 p.m. EST | Hosted by IBM with featured speaker, Sarah Burnett, EVP and Distinguished Analyst, Everest Group
Automation is on every enterprise’s agenda but many are struggling to make their vision a reality. Others are challenged keeping that vision up to date in a rapidly changing technological landscape. Sound familiar? Join this webinar to find out how to avoid an automation horror story and get a jump start on your 2019 New Year’s Resolutions for an accelerated automation journey.
Two leading automation experts have teamed up: Elli Hurst from IBM Automation’s Global Services team and Everest Group’s Sarah Burnett, a leading automation technology analyst, will discuss the challenges facing clients who are seeking enterprise-wide, intelligent automation, and provide some practical guidance on tackling those challenges.
Sarah Burnett, EVP and Distinguished Analyst, Everest Group
Many industry analysts have a theory that digital transformation will happen rapidly. But I don’t believe that. I think it will happen over five to 10 years. While digital adoption grows, we’ll see dramatic consolidation in the IT and business process services markets based on the legacy labor arbitrage factory model. A plethora of arbitrage-based service providers remain in the market.
In 2018, we’ll see that some service providers will be able to transition to digital, but some won’t. Those that don’t manage to change will consolidate. But I believe we’ll even some consolidation among those that make the change to the digital world. We’re starting to see early signs of market consolidation in 2017.
IBM’s February 2016 announced plan to acquire Truven is yet another in a recent spate of healthcare market mergers/acquisitions. The Truven purchase, IBM’s fourth major acquisition since establishing Watson Health in 2014, offers IBM access to data integration and analytics services and solutions.
Vendor perceptions: IBM is a consistent European brand recall leader across key digital product/service segments when enterprises were asked to name the vendors that are likely to be most relevant to their digital strategy