Acquisitions to drive growth for Tech Mahindra

Tech Mahindra, a listed IT services company, is planning to buy more companies. The company told analysts last Friday that it could look at mobile network services and BPO firms for inorganic growth.

Tech Mahindra is sitting on cash reserve of Rs266 crore as on March 2011. It derives its revenues from three verticals viz, telecom service provider, telecom equipment manufacturer and independent software vendors. A large chunk of its revenue (87%) was from the telecom service provider (TSP) segment.

It is common sense to imagine that Tech Mahindra would want to expand its footprint in the telecom space that it knows best.

[caption id=“attachment_32906” align=“alignleft” width=“380” caption=“Tech Mahindra wants to expand its footprint in the telecom space. Krishnendu Halder/Reuters”]  [/caption]

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Two companies that are players in the area that could be of interest to Tech Mahindra include Spanco, a listed BPO company and Aegis, a privately owned Essar Group company. Both, Spanco and Aegis have an exposure to the telecom segment.

Spanco, a Rs410 crore listed BPO company, operates Bharti Airtel’s call centre contracts in Africa.

Aegis operates in many verticals like BFSI, Telecom, Healthcare, Travel & Hospitality, Consumer Goods, Retail and Technology. It was also ranked fifth amongst top BPO (business process outsourcing) players in the country by NASSCOM’s in 2010.

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South Africa is emerging as an attractive destination for many Indian BPO firms because of its multilingual capability, fluent accent and favourable time zone for the European continent. Aegis, Spanco, Genpact, Mahindra Satyam are some companies that have expanded their footprints into the world’s second largest continent.

In the last few months, the IT industry has witnessed transactions in the BPO space. Some of the recent ones include the takeover of the assets of Cambridge Integrated Services by US-based Sedgwick Claims Management Services. However, the largest deal this year would be the acquisition of Intelenet Global Services (IGS) for Rs2,856 crore ($635 mn). It was taken over by UK-based Serco Group in June 2011.

However, such large deals are not rare. Earlier this year, BPO firm Genpact, acquired Headstrong, a financial IT service provider, for $550 million, giving it access to customers like Morgan Stanley and Goldman Sachs.

Tech Mahindra is not the only company to scout for acquisitions in the BPO space. In the past, Wipro expressed its interest in acquiring companies in this space. It acquired Citi Technology for $122 million in December 2008.

Tech Mahindra’s scrip declined by 5.8% compared to the 12.2% gains reported by the BSE IT Index in the last one year.