(Bloomberg) -- Hitachi Ltd. will pay $8.5 billion for U.S. software development company GlobalLogic Inc., a move that could help the Japanese firm expand its technology services business.
The size of the deal will increase to $9.6 billion when debt is included, Hitachi said in a statement Wednesday. The acquisition -- targeted for completion by end-July -- will be one of the largest ever for Hitachi, a storied Japanese name that grew out of electronics into a railway to electrical equipment conglomerate that’s begun investing in providing gear for the so-called internet of things. Its shares closed down 7.3% in Tokyo.
Hitachi has been helping customers automate and modernize manufacturing through its Lumada IoT platform, and technology and so-called smart life businesses now account for roughly 40% of revenues. Nikkei had reported in January the firm will spend about 350 billion yen ($3.2 billion) on acquisitions to boost its operations in North America.
“The acquisition makes sense as the target operates in the IT area Hitachi is aiming to expand,” Bloomberg Intelligence senior analyst Takeshi Kitaura said. “The company has a client network, which will help Hitachi grow further.”
San Jose, California-based GlobalLogic has helped customers including Panasonic Corp., Adobe Inc. and Ericsson AB design and build software and other digital products, according to its website. It’s privately owned and funded by Canada’s CPP Investment Board and Partners Group.
CPPIB said it expects $3.8 billion in net proceeds from selling its 45% interest in the company. “GlobalLogic performed very well and generated exceptional investment returns, including during the Covid-19 pandemic when the need for digital transformation only accelerated,” Hafiz Lalani, managing director and head of Europe for the fund’s direct private equity unity, said in a statement.
Hitachi has been acquiring and disposing of assets over the past few years as part of consolidation efforts. It exited a $26 billion U.K. nuclear power project in September, and previously bought out its high-tech unit, while selling its diagnostic-imaging business. The firm is currently weighing bids for its Hitachi Metals Ltd. unit.
What Bloomberg Intelligence Says
Hitachi’s buyout of U.S.-based GlobalLogic, reported by Nikkei, may help bridge the gap to its fiscal 2022 revenue target of 1.6 trillion yen for its Lumada (digital solutions) business, of which it has said 200 billion yen could come from M&A. GlobalLogic, with 130 billion yen of revenue and an Ebitda margin over 20%, carries a reported purchase price of 1.05 trillion yen or about 40x Ebitda -- not cheap, but it could largely be funded by divestiture of Hitachi subsidiaries.
-- Takeshi Kitaura and Ian Ma
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(Adds CPPIB proceeds and statement in sixth paragraph)
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