Tech Mahindra to acquire UK-based Target Group for $164 mn

Acquisition strengthens BFSI portfolio

Tech Mahindra, India’s sixth-largest IT (information technology) services and solutions company, on Friday announced it had entered into an agreement to acquire Target Group as it strengthens its presence in the BFSI (banking, financial services, and insurance) space. The transaction is expected to close in  the second quarter of FY17, subject to regulatory approvals. The total value of the acquisition is £112 million (or $164 million or Rs 1,100 crore) and an adjustment for surplus cash up to £8 million.

Target Group is a provider of business process outsourcing and software solutions. Its fintech platform manages assets in excess of £24 billion. Tech Mahindra will pay £64 million upfront and a deferred consideration of up to £16.28 million in 2017. In addition, the company is also rolling over 7.6 per cent equity value into the Target Group, at present worth £6.8 million, which will be paid out in 2020 as a second deferred consideration depending on the performance of the company during 2017-2019.

Target had a revenue of £51 million in 2015. The acquisition strengthens Tech Mahindra’s financial service practice by access to a platform that helps automate end-to-end processes in lending, investments, and insurance. The acquisition would boost Tech Mahindra’s capabilities and allow it to capture a larger share of the £45-60 billion annual spending by UK financial service companies on software and services, said the company.

The acquisition catapults Tech Mahindra to one of the top three processors in UK financial services for certain complex lending and investment product categories. It also strengthens Tech Mahindra’s European presence and adds several new clients.

"The Target Group’s disruptive proprietary platform significantly enhances our fintech offerings. This acquisition will make us a formidable player in the UK, with over 50 major financial institutions as clients. We look forward to welcoming Target Group’s employees into the Tech Mahindra family,” said C P Gurnani, managing director and chief executive officer, Tech Mahindra. The acquisition is in line with Tech Mahindra's strategy of expanding its fintech capabilities and adding platforms to play aggressively in financial services.

Headquartered in the UK, the Target Group has 740 employees and a client franchise including Goldman Sachs, Morgan Stanley, Credit Suisse, specialist lender Shawbrook, and Yorkshire Building Society.

As part of the agreement, Tech Mahindra has agreed to purchase 100 per cent of the shares of the Target Group, which will remain a stand-alone entity retaining its brand. The entire management team at Target will stay with the business and continue to have full operational responsibility.

Paddy Byrne, chairman, Target Group, said, “The Target Group has been focused on building expertise in the lending, investments and insurance sectors, becoming a market leading player in each of our verticals.  We have delivered significant growth over the last four years, with the support of our current shareholder, Pollen Street Capital.  We now look forward to the next stage in our growth. By joining with the $4 billion Tech Mahindra, it will allow us to serve our clients better, greatly expanding the solutions and services we provide.”

ACQUISITION HISTORY
Chart shows Tech Mahindra’s targets as well as the buying period

2012

vCustomer
$27mn

Hutchison Global Services
$87mn

Comviva*
Rs 260 cr

2013

Complex IT
$23mn

2014

BASF Business Services Consult GmbH
NA

LCC
$240mn

2015

Sofgen
NA

Pininfarina**
$185mn

*Indian buy **Pininfarnia was acquired by Mahindra & Mahindra and Tech Mahindra. Both companies paid ^25.3 mn to buy the firm.
Source: Company