Mid-size IT services company Mindtree has decided to pause its inorganic growth plans and instead turbocharge the organic route with a focus on building platforms and solution capabilities, said Rostow Ravanan, CEO and managing director of the Bengaluru-headquartered company.
“At this point in time, we are not looking at any further acquisitions. If you look at the last two-three months, all the stock markets are down, owing to a combination of factors,” he told Business Standard in an interview. “Probably we will wait and watch at the moment, and re-enter acquisition at a later stage once the macro environment settles down.”
The decision comes at a time when two of the recent acquisitions made by Mindtree – Bluefin and Magnet 360 -- have not gone the way the company had initially expected, thus dragging the revenue and profitability in the short term. These acquisitions partly did not fare well for Mindtree due to external factors, but the company’s experience in the M&A space has not been great either. In 2010, the company had to shut down its smartphone business after acquiring the Indian unit of Kyocera Wireless in 2009.
“What we learnt from the Kyocera acquisition is that you would be willing to take a risk but control the risk to an extent that if it goes wrong, it does not sink the company,” said Ravanan, also a co-founder of Mindtree. Recalling how the stock market reacted after the Kyocera acquisition went awry, Ravanan said, the company’s stock price had then lost two-thirds of its value from its peak. He noted Mindtree's stock price this time fell only by 30-40 per cent due to the delay in Bluefin and Magnet 360 integration.
“We were able to do risk management, which indicates that we have become more disciplined at it. So even if we take a risk and it does not work that way, it does not impact to the larger organisation,” he said.
In July 2015, Mindtree had acquired the UK-based Bluefin Solutions, a technology consultancy firm that specialises in SAP HANA for £42.3 million (Rs 4.23 billion). The company had employed around 170 consultants that time. However, after one year, the UK decided to walk away from the European Union following a referendum, which had a large ramification in the UK-based businesses. Since Blufin had a higher fixed cost as it was consulting heavy, it impacted the revenue and profitability. Besides, there as a cultural mismatch, which also resulted in a delay in integration.
In the case of Magnet 360, a US-based Salesforce consulting partner that Mindtree had acquired in January 2016 for around $50 million, there was a need for recalibrating its client base as the company was serving a large number of small and low-yielding customers. They had even $5,000 or $10,000 customers because as a small company, they were needed to serve a whole range.
Ravanan, however, said that though it won’t be right to claim that both the issues are now behind, there is reasonable stability. While Bluefin has completed its legal integration with Mindtree, in the case of Magnate 360 the shareholders’ approval has now been furnished to the National Company Law Tribunal that is expected to give its approval in three-four months.
“If you look at the investment, it’s succeeding quite well. Last year, for example, both Bluefin and Magnet won many awards from both SAP and Salesforce. It’s a validation that we didn’t buy those only for revenue, but for capability,” said Ravanan.
“Nonetheless, given all the ups and downs that happened, I would like to wait for one or two quarters before I say that it’s (the full integration of Bluefin and Magnate 360) done and take my focus away and go to something else.”