India’s fifth largest software services firm Tech Mahindra will acquire global network services firm Lightbridge Communications Corporation (LCC) in an all-cash deal worth $240 million (over Rs 1,486 crore).
The move will help the Mumbai-based firm tap the rapidly growing market opportunity in the telecommunications and enterprises network space.
Subject to regulatory approvals, the transaction is expected to close by the fourth quarter of 2014-15.
"We welcome a diverse workforce of 5,700 network professionals across five continents and more than 50 countries. We expect network services to be a major growth engine for our organisation," Tech Mahindra Executive Vice Chairman Vineet Nayyar told reporters in a conference call.
He added that the total cash outflow for the deal is expected to be between $200-220 million as LCC has a shareholder debt of about $85 million, some part of which Tech Mahindra may pay later. The deal will be funded through internal accruals.
Headquartered in Virginia, US, LCC is one of the world's largest independent global providers of network engineering services to the telecommunications industry.
It has 5,700 employees in over 50 countries, of which 800 are in the US. With annual revenues of about $430 million, LCC has built 350 networks and designed more than 350,000 cell sites for over 400 customers worldwide.
"We have a lot of common clients but the deal will give us access to 20-30 new clients in parts of Asia, Israel and Latin America. The acquisition positions us as a pre-eminent partner for network services globally," Tech Mahindra MD and CEO CP Gurnani said.
It will also help further differentiate Tech Mahindra's offerings to both communications and enterprise customers, he added.
Kenneth Young, CEO of LCC, will work with Manish Vyas (Business Development -- Communication Solutions at Tech Mahindra) and Ayon Banerjee (Senior VP -- Corporate Business Development) to build the business further.
Asked if the deal would help the company reach the annual $5 billion revenue club, Nayyar said he was hopeful of the same. "After the deal closure, I am hoping that we will have a run rate of $1 billion a quarter (including LCC) and maybe $1,250 million. That would put us there," he said.
For the quarter ended September 30, 2014, Tech Mahindra's net profit stood at Rs 719.7 crore (Rs 7.19 billion), while its revenues were at Rs 5,487.9 crore (Rs 54.87 billion). Communications segment accounted for 52 per cent of the quarter's revenues for the company.
Shares of Tech Mahindra rose by 3 per cent to close at Rs 2,704.20 apiece on the BSE.
Ernst & Young was Tech Mahindra's diligence partner and Dechert LLP was Tech Mahindra's legal advisor for this deal. Jefferies LLC acted as sole financial advisor to LCC and Covington & Burling LLP served as LCC's legal advisor.
The acquisition will also help Tech Mahindra boost its revenues from the North American market. Americas accounted for 49 per cent of the company's revenues in the quarter ended September 2014.
Including the employees of LCC, Tech Mahindra's total headcount will cross 1.10 lakh. LCC, which was set up by Rajendra Singh in 1983, also fits in with Tech Mahindra's goal of becoming a major player in network services.
In the last two financial years, Tech Mahindra has acquired seven firms, including Satyam Computer Services, Hutchison Global Services and Comviva Technologies. Previously, Tech Mahindra Chairman Anand Mahindra has said the company would look at buyouts in India and in overseas markets.
"We are open to all. I am open to smaller ones that may take us to newer areas. Sometimes (for) the most innovative cutting edge areas, a small garage start up may have the technology. Some entrepreneurs might want to sell or scale up. We are open to all kinds of acquisitions," he had said.
