Tech Mahindra, on Monday announced the acquisition of 51 per cent stake in mobile value-added services (VAS) provider Comviva Technologies, a Bharti Group company, for Rs 260 crore. The acquisition is expected to shore Tech Mahindra’s top line.
With the new brand identity, Mahindra Comviva, the mobility business of Tech Mahindra and Mahindra Satyam combined is expected to clock revenues of Rs 1,000 crore by March 2013.
At present, Tech Mahindra and Mahindra Satyam get around Rs 500 crore of revenues from their telecom mobility business, which includes providing software and billing systems. Comviva gets an annual revenue of Rs 400 crore. The operating margins of the company are in mid-teens.
“By March 2013, the combined mobility practice of the group, which will include revenue of Tech Mahindra, Mahindra Satyam and Comviva, along with CanvasM (another group company), should be around Rs 1,000 crore,” C P Gurnani, managing director, Tech Mahindra, said. The deal will be earnings per share-accretive from the first year.
As part of the deal, Tech Mahindra, the country’s sixth-largest software provider, is making an up-front payment of Rs 125 crore for the stake and the remaining Rs 135 crore will be paid over a five-year period based on the company achieving mutually-agreed performance targets. The deal will be funded through internal accruals.
"It is a positive move. Tech Mahindra has not been able to grow organically, and has been building on competencies outside its domain, inorganically. This acquisition will give Tech Mahindra a foothold in mobile payment and solutions. The top-10 clients account for almost 85 per cent of the company's revenue. They also get to expand into markets like Africa and Latin America. The only concern is Comviva is a Bharti Group company, and Airtel is the top client, " said Ankita Somani, an information technology analyst at Angel Broking.
The current promoter Bharti Group will continue to hold a 20 per cent stake on a fully-diluted basis in Comviva after the deal closure. Investors Sequoia Capital and Cisco Systems, which had nine per cent and six per cent stake in the company, respectively, have exited fully. Another investor, WestBridge Capital, will have a nine per cent stake in Mahindra Comviva.
The deal comes two weeks after the Mahindra group bought the India-based call-centre operations of Hutchison Whampoa for $87.1 million (Rs 484.03 crore), a deal the software services provider said will give it a revenue leg-up of $845 million over the next five years. This deal was financed by funds borrowed from Mahindra Satyam.
This acquisition will significantly enhance Tech Mahindra’s capabilities in the mobile VAS domain, and will provide access to a marquee client base, enabling significant cross-selling opportunities. Tech Mahindra will enable Comviva’s entry into developed markets such as the US and the Europe.
Comviva was founded in 1999 as Bharti Telesoft Limited. It changed its name to Comviva Technologies in 2009. The company’s solutions are deployed with over 130 service providers and banks in over 90 countries across Asia, Africa, Middle East, Latin America and Europe. It gives services to more than a billion mobile subscribers.
“This is a significant step forward, in our vision of being a complete and comprehensive partner to our clients and, like always, we are confident of making this a successful venture for our stakeholders. In addition to the market leading capabilities, this will also add to our relationship with large operator groups across the world,” said Vineet Nayyar, executive vice-chairman, Tech Mahindra.
Shares of Tech Mahindra on Monday closed at Rs 903.45, down 0.69 per cent from the previous close.