Japanese conglomerate Hitachi has announced to acquire a US-based digital engineering services company, GlobalLogic for $9.6 billion. According to company estimates the acquisition is one of the biggest in the product engineering services space.
While announcing the latest move, Hitachi said that GlobalLogic will add significantly to its delivery footprint in India, where the former has 8,000 of its 20,000 employees. GlobalLogic was founded by four IITians — Rahul Garg, Sanjay Singh, Manoj Agarwala and Tarun Upadhyay — in 2000. Its revenue is expected to be about $1.2 billion in the 2021 financial year.
At present Canada Pension Plan Investment Board holds 45% in GlobalLogic, Swiss private equity firm Partners Group Holding has another 45%, and individuals (executives of GlobalLogic and others) hold 10%.
In recent times the engineering services space has witnessed a lot of action. Among the biggest also includes Capgemini’s acquisition of Altran for $4.1 billion in 2019 and DXC’s acquisition of Luxoft the same year for $2 billion.
Sidhant Rastogi, managing partner in Zinnov, a research and advisory firm that has long focused on engineering services, said the GlobalLogic valuation, which is about ten times its revenue, came as a bit of a surprise. But he said he can totally understand the excitement in the space.
According to Zinnov, the total addressable market for digital engineering will grow to $1.1 trillion dollars by 2025, growing at a compound annual growth rate (CAGR) of 19%.
Also, digital engineering spends will grow at 17% CAGR between 2019 and 2023, while IT spends will grow at less than 1% CAGR in the same period. Even legacy engineering and R&D services are expected to degrow during this period.
“Enterprises across sectors, be it retail, banking, oil & gas, are all looking to build digital products and cloud-based backend platforms on a microservices architecture. While some of them will build their own internal teams to create this, like Walmart for instance has done, but many others will be willing to work with good digital engineering companies like GlobalLogic and EPAM,” Rastogi of Zinnov said.
At present GlobalLogic has over 400 customers, and some of its biggest ones also include Volvo, Adobe, Continental and Google. The company offers full-lifecycle product development services, user experience design, product design, content engineering, product research & ideation, product engineering, product testing & quality assurance, and product re-platforming.