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Why HCL Tech is acquiring Geometric Software for $192 million?

HCL Tech will add on to its presence in the PLM consulting, mechanical and manufacturing engineering space. It will also augment well with HCL Tech's automotive and industrial practices

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Thomas George

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HCL Technologies has made an announcement to acquire Geometric Software through a share swap deal in 10:43 ratio; making HCL Tech 10 share for every 43 shares of Geometric Software shares. However, this deal excludes Geometric's 58% stake in 3DPLM Software Ltd in partnership with Dassault Systems.

It’s slightly expensive buy at 1.5x of their 2015 sales revenue- but with a clear focus to basket a complementing acquisition which will help them in:

Client Acquisition and Growth

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This acquisition provides cross-selling opportunities in terms of services and clients, but mostly in traditional services. HCL Technologies will add on to its presence in the PLM consulting, mechanical and manufacturing engineering space. It will also augment well with HCL Technologies' automotive and industrial practices. Needless to say that this will help them to add more customers to their kitty. HCL Tech will gain access to 60 plus clients and few key OEMs across USA and Europe in the automotive, industrial and heavy engineering segments.

This acquisition can provide close to 2% revenue growth to HCL Tech’s overall revenue. However, it might pull the margins down since Geometric margin is close to 13.5% as of Q3 FY’16 and HCL Tech has close to 20% margin.

Commenting on the acquisition President of HCL Tech, G.H Rao said, “With broad end-to-end capabilities and rich experience across PLM consulting, mechanical and manufacturing engineering that Geometric brings in, the synergies allow us to take advantage of the rapidly growing manufacturing engineering and PLM services market.”

Investment in Skilled Resources

Manu Parpia, the CEO and MD of Geometric, pitched the deal as beneficial to customers and employees because they get to enjoy the advantages of working with a larger company in the form of HCL Technologies. This will help HCL Technologies onboard close to 2,606 Geometric employees spread across 13 delivery centers. which will help in building the expertise inorganically by amalgamating it with HCL Tech’s PLM consulting and engineering services practices.

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