Fairfax edges past L&T Infotech, Tech Mahindra in race for Mindtree stake

Mindtree's founders are unwilling to shed their holding as the mid-tier firm is showing a strong growth momentum

With the founders of Mindtree reluctant to cash in their holdings, Prem Watsa-owned Fairfax is learnt to be leading the race to acquire V G Siddhartha’s stake in the Bengaluru-headquartered IT services firm, sources in the know said. Currently, Siddhartha holds close to a 21 per cent stake through various entities, while the founders of Mindtree — Subroto Bagchi, N S Parthasarathy, Krishnakumar Natarajan and Rostow Ravanan — hold around 13 per cent in the company.
 
Despite L&T Infotech’s serious evaluation of the deal, Fairfax’s offer appears to be gaining acceptance as the Mindtree founders seem to prefer a financial investor to a rival technology firm, one of the sources pointed out.
 
Among technology players, apart from L&T Infotech, Tech Mahindra has evinced interest in the deal, though a company spokesperson declined to comment on the matter.
 
If Fairfax, known to be a long-term but passive investor, comes on board, it may not lead to a change in the current management, a person familiar with the development said.
 

Siddhartha wants to leave on a good note without disturbing the management structure given his two-decade association with Mindtree. Siddhartha, who first invested in Mindtree way back in 1999, had stepped down as an independent director of the firm in March 2018, setting off a market buzz of an impending stake sale.
 
An acquisition of the founders’ stakes assumes significance as the acquirer needs to hold more than 25 per cent to have board representation and to reach the trigger point for an open offer.
 
However, the founders are unwilling to shed their holding as the mid-tier firm is showing a strong growth momentum and could possibly touch the $1-billion revenue mark in the current financial year.
 

Private equity firms and financial investors such as Fairfax, KKR, Advent, Apax , Baring Private Equity Partners Asia and Carlyle are evaluating the option to buy out Siddhartha’s stake. “Possibility of hostile takeover seems remote as any strategic control without taking the management into confidence will not yield desired results,” an industry source said.
 
In earlier occasions, Mindtree CEO Rostow Ravanan had said Siddhartha's exit would not affect the operations of the IT services firm. “The management team is one hundred per cent committed to the organisation. There is no change in plans by the leadership team (as far as stake sale is concerned),” he had said post announcement of Q3 earnings. 
 
Earlier in FY09, big investors of Mindtree had made an exit when Capital sold its entire stake of around 11 per cent. The company was in the process of launching an IPO at that point. Soon after, its second-largest shareholder Walden International had also sold its stake in 2009-10.