Tech Mahindra (TechMa), India’s sixth largest software exporter, on Monday acquired a majority 51% stake in global value-added services (VAS) company Comviva for Rs260 crore on a fully diluted basis.
Monday’s deal follows TechMa’s purchase of Hutchison Whampoa’s India-based BPO Hutchison Global Services for $87.1 million (Rs 482 crore) earlier this month. The telecom services provider also inked a five-year deal with the Netherlands-based Royal KPN to provide development and support for the latter’s telecom and IT applications last week.
With Comviva’s acquisition, TechMa will have a new brand identity, and will now be known as Mahindra Comviva. The acquisition cost is payable in two tranches that include an upfront payment of Rs125 crore, and the remaining Rs135 crore over a five-year period – subject to Comviva achieving mutually agreed performance targets.
The development also makes Tech Mahindra the majority stakeholder in Comviva – a position that was earlier held by Bharti Airtel which had a 51% stake. However, post Monday’s deal, Bharti Airtel’s stake will be reduced to 20%. According to sources, Comviva’s other stakeholders -- WestBridge Capital, Sequoia Capital India and Cisco Systems – are selling their entire stake to Tech Mahindra as part of this deal.
Commenting on the deal, Vineet Nayyar, executive vice-chairman, Tech Mahindra, said, “This acquisition is a significant step forward, in our vision of being a complete and comprehensive partner to our clients and like always, we are confident of making this a successful venture for our stakeholders. In addition to the market leading capabilities, this will also add to our relationship with large operator groups across the world.”
Comviva’s managed VAS capabilities are expected to give TechMa an edge in the mobile VAS domain. As per TechMa management, the acquisition will increase operators’ revenues across VAS services by up to 20%, speed time to market by over 40% and reduce overall VAS delivery and management costs by 35%. Besides, it would also provide significant financial gains, considering the fact that Comviva has an annual turnover of $70 million, with 15% operating margins.
“Organically, Tech Mahindra has been unable to grow much in the telecom sector with CanvasM, and so now they are trying an inorganic route with the Comviva acquisition,’’ remarked Ankita Somani, research associate with Angel Broking.
Manik Taneja, analyst with brokerage Emkay Global, said, “This acquisition will expand Tech Mahindra’s existing VAS and mobility presence that it already has with CanvasM, its telecom VAS arm, on the non-linear side. The deal is expected to strengthen Tech Mahindra’s revenues and Ebitda. And will be a margin-accretive deal, given that Comviva has better margins. Besides, VAS is expected to be a major contributor to telecom revenues going forward.”
As part of the deal, Comviva’s 1,500 employees will be added to Tech Mahindra’s existing employee base of 41,000. The merger is expected to be completed within the next 3-5 weeks, subject to statutory approvals.