Bangalore/Mumbai: Information technology (IT) services firm MindTree Ltd will acquire the Indian subsidiary of US telecom handset maker Kyocera Wireless Corp. for an upfront payment of $6 million (around Rs29 crore) in a cash deal, the Bangalore-based firm announced on Tuesday.
Further payments will be linked to the acquired meeting certain revenue targets in 2010-11 and 2011-12, though MindTree did not offer any information on these targets or the extent of future payments.
MindTree expects the new acquisition to contribute nearly $9 million in revenues from October to March, with a profit margin of 13-15%. MindTree will also take on board nearly 600 engineers at Kyocera’s India unit and continue to be a vendor for Kyocera globally.
Ahmed Raza Khan / Mint
This is the fifth acquisition for the mid-sized IT firm. MindTree acquired SAP implementation firm ASAP Solutions in 2004 for an undisclosed sum, application development and maintenance services firm Linc Software Services Pvt. Ltd in 2005 for $10 million, computer chip design firm Purple Vision Technologies Pvt. Ltd in 2007 for $6.55 million, and took a 52.5% stake in software testing and research firm Aztecsoft Ltd for $47.25 million in 2008.
The firm already has a niche software product portfolio for wireless communication devices and expects the Kyocera acquisition to further strengthen its position in the segment.
The acquisition will help MindTree offer “end-to-end design and technology services to wireless original equipment manufacturers and service providers”, said Janakiraman S., MindTree’s president and chief executive for product engineering services.
“The acquisition, and our relationship with Kyocera, will fuel MindTree’s growth in the global product engineering services market,” said Krishnakumar Natarajan, chief executive of MindTree.
“MindTree early this year announced a desire to become a $1 billion firm and a major part of the strategy was to drive growth through inorganic means, and this acquisition is possibly the first step in that direction,” said Karthik Ananth, engagement manager at IT outsourcing advisory services firm Zinnov Management Consulting Pvt. Ltd.
Divesting the India unit is part of Kyocera’s global organizational consolidation and cost rationalization. The sale follows Kyocera’s 2008 acquisition of Sanyo Electric Co. Ltd’s mobile handset business for $375 million. This gave Kyocera got on board nearly 1,700 software research personnel, making its India research and development unit redundant in the global scheme of things, the firm said in a statement.
Kyocera’s Indian unit, started in 2003, develops software applications for mobile handsets and provides performing application testing services for Kyocera’s global mobile handset portfolio. The firm also develops wireless handsets for Indian service providers.
“This (divestment) allows Kyocera to improve its cost structure and competitiveness while providing MindTree a strong engineering resource, especially in the field of software for mobile devices,” said Yasuyuki Yamamoto, general manager of Kyocera’s corporate communication equipment group.
An analyst with a Mumbai-based investment advisory services firm said the buy would boost MindTree’s growth in the medium term, but the firm has to look at broader enterprise services to be able to scale up and enter the next league of IT services firms. The analyst, who tracks MindTree as part of his institution’s investment portfolio, did not want to be identified as he is not authorized to speak to the media.
For the June quarter, MindTree had revenue of $62 million and 7,693 employees.