The Largest Ever Acquisition for Hitachi
The move comes amid Hitachi’s revamp of its business group to focus on the IT industry while abandoning non-essential operations. GlobalLogic is a California-based software development company that makes platforms for companies searching for digital opportunities.
"The objective of this acquisition is to advance our [Internet of Things or IoT platform] Lumada and accelerate global businesses," said Toshiaki Higashihara, president and chief executive of the company.
The GlobalLogic acquisition represents another large-scale overseas acquisition after the Japanese company acquired Swiss ABB's power grid business in July 2020 for around ¥700 billion ($6.32 billion). Hitachi was looking to take advantage of the rapidly-booming power grid market and obtain access to ABB's worldwide customer base and sales network.
Hitachi expects to see major benefits from GlobalLogic’s expertise in the “chip-to-cloud” market and its software experience in collaborating with non-Japanese companies in various business sectors, including automobiles and health care.
When it comes to the heavy price tag, Higashihara said his company spent a significant amount of time looking into GlobalLogic and made the decision on the back of the company’s organic growth potential and its expected synergies with Hitachi’s IT operations.
"We have a tremendous opportunity ahead and we are excited to embark on this journey with Hitachi, combining our collective skills, technologies, and market presence to deliver greater value to our clients as they transform their businesses,” said Shashank Samant, president and CEO of the software business.
The Japanese manufacturing titan said it will buy out GlobalLogic's shareholders in July and run the company under Hitachi Global Digital Holdings.
The business deal comes as a part of Hitachi’s efforts to put more focus on IT and software operations, particularly its Lumada platform. Furthermore, the Japanese company is developing a system that utilizes data analysis to enhance production site management.
As a result of the transition, the company’s IT business sales are expected to hit ¥1.97 trillion ($17.78 billion) in the year ended March 2021. This figure amounts to around 25% of the total sales. Additionally, the operating income from the IT business sector is estimated to be around ¥232 billion ($2.09 billion), representing over 50% of the total operating income at the Japan-based company.
The IT business unit has an operating profit margin of more than 10%, higher than other sectors. Geographically, the bulk of the company’s IT business success comes from Japan. About 70% of the company’s IT segment comes from Japan, particularly from financial institutions and government agencies.
Roughly 50% of the company’s group sales come from outside of the home; however, that revenue originates from hardware sales like elevators and railways.
Hitachi stock dropped 7.3% in Tokyo on the news about this deal.
Hitachi is set to acquire the US-based software development company GlobalLogic in a $9.6 billion deal representing the largest one yet for the Japanese company.
About the Author
Avi Ben Ezra is the Chief Technology Officer (CTO) and Cofounder of SnatchBot and SnatchApp (Snatch Group Limited). He leads the Group’s long-term technology vision and is responsible for running all facets of the tech business which includes being the architect of the platforms and UI interfaces.