Contact: Thejeswi Venkatesh
Close on the heels of its announced restructuring, NEC has inked the biggest acquisition in its history. Taking advantage of a strong yen, the Japanese tech giant said last week that it will acquire Convergys’ information management division for $449m. In some ways, the dramatic overhaul at NEC was overdue. But that does not mean the nearly half-billion-dollar bet is certain to pay off.
The company is rolling the dice on M&A as its core business continues to shrink. In recent years, revenue at NEC has dropped about one-third, sliding from ¥4,652bn($41.4bn) in 2007 to ¥3,100bn($40.1bn) in 2011. When the company announced a drastic restructuring in January, it indicated that it would refocus on the IT services, carrier network and social infrastructure sectors. While the latest acquisition bolsters NEC’s IT services division, it is picking up a business that hasn’t done too well under its previous ownership.
According to public filings, sales at Convergys’ information management business unit slid from $723m in 2007 to $329m in 2011. The decline came even as Convergys spent more than $80m over the past three years trying to resurrect the division. All of this underlines the difficulties that NEC, which has precious little experience with acquisition and integration, faces in getting a return on its purchase of Convergys’ castoff business.