In the largest deal in the domestic information technology (IT) space, MindTree Consulting is set to acquire mid-tier outsourcing product development (OPD) and testing player, Aztecsoft, for around Rs 400 crore. Both are Bangalore-based firms.
The deal is expected to be concluded in a couple of days, according to sources familiar with the situation. Both Aztecsoft and MindTree spokespersons, when contacted, declined to comment on the issue. Yes Bank is the banker for the deal.
MindTree will be buying the 34 per cent stake held by private equities, e4e and Canaan Partners, and then make an open offer under the Takeover Code. The non-institutional public shareholding is 46.27 per cent, while institutional public shareholding is around 17.5 per cent. The promoters hold 36.21 per cent.
The acquisition is expected to kick off consolidation of mid-tier IT firms in India, which are feeling the heat of a rising Indian rupee, a US slowdown and a dip in global IT spends. Moreover, while it will lend the much-required scale to MindTree, the synergies between the two companies are evident.
Aztecsoft has over 2,200 employees and caters to the North American, European, Indian and Australian markets. It has four delivery centres in India. For Mindtree, which aims to be a $1-billion company, the acquisition makes sense, say analysts.
Besides getting scale as it becomes an around Rs 1,100-crore company, it gets a client base. Second, the key management personnel of both the companies are said to be comfortable with each other.
Third, while MindTree is strong on the IT services front, Aztecsoft focuses on the growing OPD space and testing, and caters to the product engineering business. During the fourth quarter ended March 31, 2008, MindTree's top-line rose 30 per cent to Rs 203.9 crore.
Its operating profit went up 21.8 per cent to Rs 26.6 crore. On a full-year basis (FY08), its net profit grew 15.6 per cent to Rs 104 crore while its top line moved up 24.3 per cent to Rs 733.8 crore. Its stock was Rs 471.80 at the close of trading on the Bombay Stock Exchange (BSE).
Aztecsoft, on the other hand, saw a 53 per cent decline in its net profit to Rs 3.15 crore for the quarter ended March 31, 2008, as the appreciating rupee shaved off Rs 4 crore from its bottom line. Revenues of the firm for the quarter, however, went up by 10 per cent to touch Rs 68.7 crore.
The company is yet to recover from the loss of a major client, Dendrite, which set up its own captive centre in India. On a sequential (quarter-on-quarter) basis, Aztecsoft's bottom line grew 44 per cent, while its top line rose by 8.5 per cent. Its stock was at Rs 76.70 at the close of trading on the BSE.