GlobalLogic to fly under the Banner of Hitachi for $9.6 Billion Very Soon

By – Ashwathy Nair

U.S. software developer GlobalLogic is all set to be acquired by Hitachi for an amount of $9.6 billion. This deal is expected to be the largest acquisition done by a Japanese electrical equipment organization.

While shedding non-core operations, the planned acquirement comes as Hitachi is quickly revamping its group businesses in order to concentrate on the IT sector. GlobalLogic, a Silicon Valley-based company formed in 2000, provides tools for businesses seeking to explore digital market opportunities.

Hitachi is all set with its plans to acquire all shares from existing shareholders in July and to put the company under the authority of Hitachi Global Digital Holding, which is being overseen by its IT business in the U.S.

The news of this acquisition stimulated a strong reaction from investors, however, on Wednesday, with the share price falling more than 7 per cent of Hitachi in Tokyo.

Hitachi is focusing its resources on IT-related businesses, especially Lumada, its internet of things platform. The company is also working on a framework that will use data analysis to enhance production site management.

Some results have been produced by the shift. IT-related sales of Hitachi are estimated to reach 1.97 trillion yen in the year ended March 2021, operating income from the division is forecast to reach 232 billion yen, or more than half of the total, accounting for around a quarter of the company’s total revenue. Its IT activities have an operating profit margin of over 10 per cent, which is higher than its other establishments.

The majority of Hitachi’s IT success, however, has been domestic. Overseas revenues account for around half of the company’s overall revenue, but that revenue is largely from hardware such as elevators and railways. Japan, on the other hand, accounts for 70 per cent of its IT sector sales, mostly from financial institutions and government agencies.

Hitachi recently completed another large-scale overseas acquisition, this time with GlobalLogic. In July 2020, the Corporation completed the acquisition of Swiss ABB’s power grid business for around 700 billion yen. This move was made to gain access to ABB’s global customer base and sales network, as well as tap into the rising power grid market amid a surge in renewable energy.

GlobalLogic partners with 400 companies in the United States, including Sprint, as well as foreign companies including Volvo. Hitachi hopes that the acquisition would allow it to sell more of its own systems to these businesses. It employs over 20,000 people in 14 countries and has a production centre in India.

Hitachi has been selling off non-core companies as part of its restructuring. Hitachi Chemical was sold to Showa Denko, a Japanese materials manufacturer, last year, and Hitachi Metals, which was once considered one of Hitachi’s three main units, is in the process of being sold.

CPP Investments, which manages public pensions in Canada, and Partners Group, a Swiss investment fund, each own a 45 per cent stake in the firm. The company’s board owns the remainder.