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As part of the merger process, the exchange ratio will be five shares of Tech Mahindra for every 12 shares of MES. Tech Mahindra will issue 4.26 million new shares, thereby increasing its outstanding shares to 230 million. The merger subject to all regulatory authority approvals and the entire process could take approximately 8-9 months, said the company in a release.
Mahindra Engineering Services, is a global engineering consultant and service provider catering to automotive, aerospace, defense & manufacturing industries. It has around 1,300 employees and revenues of Rs 250.59 crore as of FY13.
"Mahindra Engineering Services (MES) and Tech Mahindra's Integrated Engineering Services (IES) merger strengthens the existing services portfolio, enhances presence in US and Germany, provides scale and brings in new clients for further expansion. Our Innovation and Product development expertise synergizing with the MES domain expertise enables the most comprehensive solution portfolio for our customers and the world at large" said Karthikeyan Natarajan, Global Head – Integrated Engineering Services, Tech Mahindra.
The merger, if it comes through, is seen positive for Tech Mahindra, as it will strengthen the manufacturing vertical of the Mumbai-based company as it will gain access to some key automotive clients across the globe. This will also compliment Tech Mahindra which has presence in defence and aerospace segment. MES will benefit due to the larger global reach of Tech Mahindra.
“The amalgamation will further strengthen the manufacturing vertical of TechM which had earlier seen a boost after the acquisition of Satyam,” brokerage firm Prabhudas Lilladher said in a note.
“This merger is a big leap for us towards addressing growing business demands. Our joint go-to-market strategy will help us capture newer markets and enhance our service portfolio especially in Aerospace and Embedded services segments while bringing value to all our stakeholders,” says Prashant Kamat, CEO, Mahindra Engineering Services.
Tech Mahindra has strengthened its manufacturing vertical significantly when its parent, Mahindra Group, acquired the beleaguered firm Satyam Computer Systems in 2009 and merged it with the Mumbai-based company over the following years.
MES provides engineering services in all domains of mobility, such as, automotive, off-highway equipment, aerospace and marine, and has over 40 clients globally. Some of its marquee clients include Honda, Renault-Nissan, Bentley, McLaren, GM, Navistar and Mercedes Benz and Volvo Construction Equipment. Its clients in the aerospace include National Aerospace Laboratories, Hindustan Aeronautics and Seabird Aviation.
In FY12, Mahindra Engineering had revenue of around $33 million and EBITDA margin of 27%. The compounded annual growth rate of the company between FY11 and FY13 has been around 22%. Additionally, according to industry sources, Mahindra Engineering has a zero debt.
“The company (Tech Mahindra) may utilise its treasury share of 24 million or net cash of Rs 32.4 billion for the amalgamation,” Prabhudas Lilladher said. “The company will require special resolution with approval of three-fourth of shareholders, along with approval of High Court.”
