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Business deals

Hitachi to acquire US software developer GlobalLogic for $9.6bn

Japanese electrical equipment company's shares fall more than 7%

Hitachi's acquisition of GlobalLogic for $9.6 billion would be the largest in Japan's electrical equipment industry if it goes through. (Photo by Koji Uema)

TOKYO -- Hitachi is set to acquire U.S. software developer GlobalLogic for $9.6 billion in what is expected to be the largest acquisition by a Japanese electrical equipment company.

"The objective of this acquisition is to advance our [Internet of Things platform] Lumada and accelerate global businesses," Hitachi President and CEO Toshiaki Higashihara said at an online press conference on Wednesday.

The planned acquisition comes as Hitachi is rapidly overhauling its group businesses to concentrate on the IT sector while shedding non-core operations.

Silicon Valley-based GlobalLogic, founded in 2000, develops platforms for companies pursuing digital business opportunities.

Hitachi senior vice president Toshiaki Tokunaga said the Japanese company would benefit from GlobalLogic's strengths in the "chip-to-cloud" know-how, as well its experience of working with companies outside Japan in sectors such as automobiles, health care and industry.

Addressing the hefty price tag of the acquisition, Higashihara said Hitachi "spent a lot of time looking into the company" and made its decision based on the organic growth potential of GlobalLogic, as well as the expected synergies with Hitachi's IoT businesses.  

Hitachi plans to buy out GlobalLogic's shareholders in July and put the company under the umbrella of Hitachi Global Digital Holdings, which oversees its IT business in the U.S.

News of the deal was not well received by the market, however, with Hitachi's share price in Tokyo falling more than 7% on Wednesday.

The acquisition is part of Hitachi's move to concentrate its resources on IT-related businesses, especially its Lumada platform. The company is also working to develop a system that uses data analysis to improve management of production sites.

This shift has produced some results. Hitachi's IT-related sales are estimated to reach 1.97 trillion yen in the year ended March 2021, about a quarter of its consolidated sales, while operating income from the segment is expected to hit 232 billion yen, or more than 50% of the total. The operating profit margin for its IT operations is over 10%, higher than its other businesses.

However, most of Hitachi's success in the IT field has been domestic. About half of its group sales come from overseas, but that revenue is mainly from hardware such as elevators and railways. By contrast, 70% of its IT sector revenues come from Japan, largely from financial institutions and government agencies.

The GlobalLogic deal follows another big-ticket overseas acquisition by Hitachi. The company completed the purchase of Swiss ABB's power grid business in July 2020, at a cost of about 700 billion yen. That move was aimed at tapping the growing power grid market amid a boom in renewable energy, and also gaining access to ABB's global customer base and sales network.

GlobalLogic serves 400 U.S. companies, including telecommunication group Sprint, as well as international players such as automaker Volvo. Hitachi is hoping the acquisition will help it expand sales of its systems to these companies. GlobalLogic has more than 20,000 employees in 14 countries, along with a development base in India.

As part of its restructuring, Hitachi has also been selling non-core businesses. It sold Hitachi Chemical to Showa Denko, a Japanese materials producer, last year and is in the process of selling Hitachi Metals, which was once considered one of its three main units.

CPP Investments, which manages Canadian public pensions, and Partners Group, a Switzerland-based investment fund, each own 45% of GlobalLogic. The rest is owned by the company's management.

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