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Tech Mahindra has made its 8th acquisition in 10 months, but all that may not be enough to drive growth

Tech Mahindra has made its 8th acquisition in 10 months, but all that may not be enough to drive growth
  • IT firm Tech Mahindra has acquired 100% stake in Europe-based Com tec Co IT (CTC) for 310 million euros (₹2,628 crore).
  • This will be the company’s eighth acquisition in FY22.
  • However, Tech Mahindra’s shares slipped 2% on Tuesday as investors are nervous about the second largest deal done by the company after 2014.
Pune-based information technology (IT) firm Tech Mahindra has acquired Europe-based Com tec Co IT (CTC) for 310 million euros (₹2,628 crore).

CTC is an IT solutions and service provider serving the insurance and financial services industries with development centres in Latvia and Belarus.

However, Tech Mahindra’s shares slipped 2% on January 18 as investors seemed nervous about the second largest deal done by the company as the company’s past buyouts have gone awry.

Ashish Das, IT analyst at Sharekhan, pointed out that “… in the past some large acquisitions [have adversely] impacted the company.”

This is in context to LCC Pakistan, which was acquired by Tech Mahindra in 2014, which didn't quite work well for the IT firm and they sold it in 2017.

“The growth in the acquired European company is good, but has come only in the last three years while it has existed since 20 years. Management said that the growth is moderating because they have negligible sales capabilities. So Tech Mahindra will have to invest in sales to drive growth,” added Das.

Adding to it, the acquired company has high client concentration as it gets 60% of the revenue from one client.

This is the eighth acquisition by the company in FY22. It has bought IT firms from across the world that were largely into digital transformation of enterprises or consulting.
Acquired companies in FY22

Value

DigitalOnUs

$120 million

Eventus Solutions Group

$44 million

Brainscale Inc.

$28.8 million

Beris Consulting Gmbh

8.06 million

Infostar LLC

$105 million

We Make Websites

$13 million

Activus Connect

$62 million

The acquisition will enable Tech Mahindra to tap into the potential of the insurance sector, expand its offerings to high-end digital engineering services for some of the largest insurance, re-insurance and financial services organisations globally and scale its nearshore delivery presence.

Moreover, Tech Mahindra will add more than 720 skilled IT professionals in Latvia and Belarus.
Brokerage firm

Target price

Jefferies

₹2,030

Nomura

₹2,220

Sharekhan

₹2,060

Motilal Oswal

₹1,910


In addition, the IT company has also announced the acquisition of 25% stake in two IT platforms – SWFT and Surance – for 20 million euros with an option to acquire another 20% equity shares in the next two years.

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