Bangalore: Amid-sized IT services firm, MindTree Ltd, said it would pay Rs117 crore to acquire one-third of smaller Bangalore rival Aztecsoft Ltd, from its largest shareholder E4E Holdings Ltd. This acquisition will help MindTree add services such as outsourced product development (OPD) and testing.
MindTree will soon make an open offer to buy 20% additional shares from the public, and later merge Aztecsoft into itself. About 64% of Aztecsoft’s equity is held by the public, including individuals and institutional shareholders.
Smart buy: MindTree chief executive Krishnakumar Natarajan. (Photo: Hemant Mishra/ Mint)
“For our IT services customers, Aztecsoft’s software product knowledge will give us a unique edge in architecting, integrating, deploying and managing the right solutions,” said MindTree chief executive Krishnakumar Natarajan.
“The deal is detrimental to MindTree in the short term because of Aztecsoft’s lower margins. The valuation is slightly on the higher side,” said R. Ravi, analyst with Karvy Broking Ltd. The deal will help MindTree to get more annuity business.
MindTree is paying Rs80 a share to E4E Holdings, a marginal premium over the current market price of Aztecsoft at Rs78.50. The MindTree scrip ended 3.5% up at Rs483 on the Bombay Stock Exchange on Friday.
“The buyout will be funded from the cash reserves of Rs200 crore, which also includes the unutilized proceeds of the initial public offer,” said Rostow Ravanan, chief financial officer, MindTree.
MindTree sold shares to the public in March 2007, raising Rs237.5 crore.
Aztecsoft is MindTree’s fourth acquisition in the past four years. Last year, MindTree acquired the chip design team of PurpleVision for Rs26 crore. MindTree is not revising its earnings forecast for the year at this point of time as it expects the merger of Aztecsoft to happen in the second half.
For fiscal 2009, MindTree has forecast that its revenues will grow by 24-29% to $228-238 million. Net profit is expected to grow between 23-29% in the range of $31.7-33.1 million.
Aztecsoft, which focuses on OPD and testing, employs 2,100 professionals and boasts customers such as Microsoft Corp. The company had cash and cash equivalents of Rs75.14 crore on its books for the year to March. Aztecsoft reported a net profit of Rs17.38 crore on revenues of Rs253 crore for the year ended March.
MindTree, which serves customers such as AIG, Volvo and Unilever, reported a 15% rise in consolidated net profit to Rs103.2 crore for fiscal year 2008, while revenues grew by 28% over the previous year to Rs767.7 crore.