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Business News/ Companies / News/  Tech Mahindra acquires 100% stake in Lightbridge Communications
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Tech Mahindra acquires 100% stake in Lightbridge Communications

The deal is expected to close by the fourth quarter of 2015, subject to regulatory approvals

A file photo of Tech Mahindra campus in Pune. Photo: Hemant Mishra/MintPremium
A file photo of Tech Mahindra campus in Pune. Photo: Hemant Mishra/Mint

Mumbai/Hyderabad: Tech Mahindra Ltd, India’s fifth largest software services exporter, has acquired US-based global telecom network services provider Lightbridge Communications Corp. (LCC) in an all-cash deal for $240 million.

The acquisition, the largest overseas by Tech Mahindra, will add 20-30 clients and boost the company’s presence in the US. The transaction is expected to close by the fourth quarter of the current financial year.

“This acquisition is a defining moment for Tech Mahindra and the network services sector. We will now be the largest and most comprehensive provider of technology services to communications service providers," C.P. Gurnani, Tech Mahindra’s managing director and chief executive officer, said on Thursday.

This is the third acquisition Tech Mahindra has made this year. In February, Tech Mahindra announced that it acquired the information technology services arm of Germany-based chemical company BASF Business Services Holding GmbH for an undisclosed sum to expand its presence in Europe.

In April, Tech Mahindra said it acquired a 75% stake in US-based big data start-up FixStream Networks Inc., for $10 million. The last big acquisition announced by Tech Mahindra was in September 2012, when it bought Hutchison Global Services for $87.1 million.

Tech Mahindra said it will take on 5,700 employees spread over 50 countries from Lightbridge as part of the deal, taking the combined workforce of the joint entity to some 100,000. Most of the employees are based in the US and Europe.

Lightbridge is expected to deliver revenue of $430 million by the end of the current calendar year. The deal is expected to take Tech Mahindra closer to achieving its target of $5 billion in revenue by 2017.

Tech Mahindra has been seeking to leap into the top tier of information technology companies, and in 2009, acquired Hyderabad-based Satyam Computer Services after that company fell into a crisis following a 7,136 crore accounting scandal.

While the acquisition made Tech Mahindra India’s fifth largest software services exporter, the company still has a long way to go in bridging the revenue gap between itself and its bigger rivals.

To put it in context, Tech Mahindra reported dollar revenue of $900 million in the quarter ended 30 September; Tata Consultancy Services Ltd, India’s largest software services exporter, earned dollar revenue of $3.93 billion in the same period.

With Lightbridge’s “revenue run rate of $430 million, it puts them (Tech Mahindra) within striking distance of their $5 billion target for 2017", an analyst at a Mumbai-based brokerage said on condition of anonymity.

“It would also add to Tech Mahindra’s network, mobility, analytics, cloud, security (NMACS) portfolio, as the company is in the network services space," the analyst added.

The latest deal is expected to significantly boost Tech Mahindra’s presence in the US, apart from bringing synergies with common clients in Asia, Israel and Latin America.

It is also expected to improve Tech Mahindra’s play in the network services space—which the company estimates to be a $40 billion market—helped by the addition of Lightbridge’s expertise in radio engineering and network design. Lightbridge has built 350 networks and designed more than 350,000 cell sites for over 400 customers worldwide.

“Over three decades, LCC has grown to become the largest independent provider of wireless engineering services. Bringing LCC into Tech Mahindra will create the industry’s largest network engineering, deployment, and managed services organization," said Kenneth Young, CEO of LCC.

As of now, the telecommunications business accounts for around 45% of Tech Mahindra’s revenue.

“Right now telecom is doing well, but if the telecom sector is slightly impacted, revenues could take a hit. On the positive side, the deal opens doors to newer geographies for Tech Mahindra. It is a good fit and Tech Mahindra bought LCC for a good valuation," said Ankita Somani, an analyst at MSFL Research, a part of the Marwadi Institutional Business Group.

In July, LCC said it acquired Israel-based Leadcom Integrated Solutions Ltd, a telecom network services provider with operations in Africa, the Far East, Latin America and the Caribbean for an undisclosed sum. At the time of the acquisition, Lightbridge said the combination would generate $420 million in revenue in 2014.

EY was Tech Mahindra’s diligence partner and Dechert Llp was Tech Mahindra’s legal advisor on the deal. Jefferies Llc acted as sole financial advisor to LCC and Covington and Burling Llp served as its legal advisor.

Shares of Tech Mahindra rose 2.97% to 2,704.20 on Thursday on the BSE while the benchmark Sensex gained 0.12% to 28,067.56 points and the IT Index advanced 1.27% to close at 11,001.73 points.

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Published: 20 Nov 2014, 05:59 PM IST
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