Tech Mahindra on Thursday signed a definitive agreement to acquire Virginia-based Lightbridge Communications Corporation (LCC) for US$240 million, subject to regulatory approvals.
This event marks the largest acquisition so far in the Indian IT services space. In July this year, Wipro, India’s third-largest software services firm acquired the IT services division of Canada-based company Atco for US$195 million. On the other hand, Cognizant announced that it would acquire U.S.-based organization TriZetto Corporation in a US$2.7 billion deal. However, Cognizant is not listed on Indian bourses, which makes Tech Mahindra’s latest acquisition the largest so far.
Tech Mahindra Ltd., with annual revenues of around US$400 million, is the fifth-largest software services provider in India and a specialist in digital transformation, business re-engineering, and consulting. C. P. Gurnani, CEO and MD of Tech Mahindra commented that this acquisition is a defining moment for them and LCC.
A senior research analyst at Future Market Insights commented, “Is this acquisition a defining moment for Tech Mahindra and LCC, or is it defining challenges?”
But, is this largest acquisition a wise move by Tech Mahindra? With this acquisition, Tech Mahindra will stand out as the only Indian IT services provider in the sector – networking services management (NSM). This sector is currently dominated by Alcatel Lucent and Ericsson, and will Tech Mahindra be able to compete against these companies in the NSM space by relying on LCC?
LCC, a privately-held US enterprise, claims to be one of the largest, independent network engineering companies in the world that offers network design, consultancy, deployment, and solutions to improve network performance. Post the deal, the global tech giant is expecting to reach US$1 billion revenues.
Improving profitability from the acquired business could prove challenging for Tech Mahindra, since LCC operates at around 8% margin compared to Tech Mahindra’s FY14 margin of 22.2%. This puts pressure on Tech Mahindra to bring LCC’s margin at par its 22.2% margin.
Another issue that Tech Mahindra has to take care of is the combined workforce, post the acquisition. LCC, headquartered in McLean, Virginia, is an independent global network services leader. The organization employs over 5,000 people across 50 countries. Tech Mahindra’s said that the company would have to manage LCC’s employees as part of the deal, taking the combined workforce to a massive number of 100,000 employees, who are mostly based in Europe and the U.S.
This deal marks as the sixth acquisition made by Tech Mahindra in the past two years. In February this year, Tech Mahindra acquired BASF Business Services Consult. While in February last year, Tech Mahindra acquired Brazilian SAP consulting provider Complex IT for an undisclosed sum. In 2012, it claimed Hutchison Global, acquired vCustomer BPO in 2012, and 51% stake in Comviva Technologies.
According to a senior research consultant at FMI, this could be an indication that the global technology giant is planning on pocketing some other big deal wins in the near future. The consultant further stated that Tech Mahindra might have to redefine plans for future M&As to ensure flawless integration with other companies in order to capitalize on opportunities.