Tech Mahindra On A Buying Spree

After a recent announcement on the acquisition of Hutchison Whampoa’s call centre business, Tech Mahindra yesterday i.e on September 17, 2012 announced that it would acquire a 51 per cent stake in Comviva Technologies Limited. Comviva Technologies, a Bharti Group company, addresses mobile service providers by providing them solutions in the areas of value-added services (VAS), mobile applications, platforms, mobile financial solutions, etc. Comviva’s services are being deployed by over 130 service providers over 90 countries and in turn used by millions of subscribers.

Tech Mahindra is buying a 51 per cent on a fully undiluted basis for a value of Rs 260 crore. The company would make an upfront payment of Rs 125 crore and the balance would be paid out over a period of five years on Comviva achieving mutually agreed performance targets. Tech Mahindra derives revenue primarily from technology services provided to clients in the telecommunication industry. For FY12, 80.7 per cent of revenues came from telecom service providers, 6.6 per cent from telecom equipment manufacturers, 9.7 per cent from business support groups and 3.1 per cent from others. Considering the industry-specific operational model of Tech Mahindra, this acquisition would definitely help the company leverage its position.

It is expected that Tech Mahindra’s revenue from mobility solutions would touch Rs 1,000 crore by FY13. While Tech Mahindra’s acquisition of Hutchison Global Services Private Limited would enhance its position in the customer management space, the Comviva acquisition would significantly develop capabilities in the mobile VAS domain, wherein it also owns a company called CanvasM. The deal would also provide access to Comviva’s client base, enabling significant cross-selling opportunities, thus strengthening its overall standing in the telecom vertical.

Tech Mahindra believes this acquisition is in line with the company’s strategy of investing in emerging areas like network, mobility, analytics, cloud and security and of focusing on non-linear growth. The stock touched an intraday high of 2.77 per cent. The much-awaited merger of Tech Mahindra with Mahindra Satyam would unlock value and make the new entity the 5^th largest IT player in India.