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L&T Infotech and Mindtree merger gets nod, will become India’s 5th largest IT firm by market cap

L&T Group Chairman AM Naik said he expects LTIMindtree to generate $5 billion in revenue by next year.

November 15, 2022 / 08:13 AM IST
AM Naik

AM Naik

L&T Infotech and Mindtree have received merger approval and will begin operating as a merged entity on November 14, becoming the country's fifth-largest IT provider by market capitalisation and sixth-largest by revenue. This is one of the largest mergers in the Indian information technology (IT) sector.

LTIMindtree, the combined entity, will benefit from scale, allowing it to pursue larger outsourcing contracts as clients look to consolidate vendors in an increasingly challenging macro environment.

L&T Group Chairman AM Naik said that the merger has been approved by the National Company Law Tribunal's (NCLT) Mumbai and Bengaluru benches in separate orders.

Naik said that the merged entity, along with L&T Technology Services (LTTS), will generate $5.6 billion in revenue this year. He expects LTIMindtree alone to generate $5 billion in revenue next year.

Mindtree will be delisted from stock exchanges and LTI will be rebranded as LTIMindtree effective November 24, said Vinit Teredesai, the combined entity's Chief Financial Officer.

The merger will help L&T in achieving its goal of increasing IT-enabled services to 25 percent of the company's total business by 2026, Naik said. "It might be even higher when it comes to market cap," he said.

The entity, Naik said, is uniquely positioned to combine and scale by competing for larger deals, and offers greater ability to stick together for end-to-end offerings and deeper engagement with hyperscalers to generate significant value.

LTIMindtree hopes to go from good to great in the next five years, with double-digit growth rates, Naik said.

LTIMindtree and LTTS will continue to operate independently despite being part of the L&T Group, he added.

L&T previously stated that it expects IT services to account for at least 40% of its market capitalisation in the next 2-3 years.

The merger of the two L&T software units was announced on May 6 and was expected to be completed by the end of the year. L&T Limited now owns 68.73 percent of LTI. Mindtree shareholders will be issued LTI shares at a ratio of 73 LTI shares for every 100 Mindtree shares.

The companies had a combined headcount of 89,271 as of September 30, 2022.

A steering committee was formed to oversee the merger proceedings, with members of both companies' management putting in place plans and the structure for the joint entity.

Mindtree CEO Debashis Chatterjee will lead the combined entity. The choice of Chatterjee as CEO of the combined entity was based on his prior experience at Cognizant, where he was responsible for delivering technology services across all industry segments. LTI's former CEO Sanjay Jalona left the company in May this year.

At Cognizant, LTI Chief Operating Officer (COO) Nachiket Deshpande also reported to Chatterjee. Deshpande will now be the COO of LTIMindtree.

"LTIMindtree will benefit from revenue synergies on upselling, cross selling and stitching services together," Chatterjee said, adding that the merged entity will get access to a lot of industries and verticals which they couldn't individually.

Chatterjee, the CEO of LTIMindtree, said the focus of the combined entity will be on cross-selling and upselling.

"We are very confident that as and when there are opportunities of large deals, we will have a much more better position to get a seat on the table and compete on those deals but at a detail level we are still working on the strategies," he said.

"Some parts of cost synergies are natural for instance in real estate. But that will happen over time. Cost synergies will be more back-ended while revenue synergies will be front-ended," he added.

L&T completed its hostile takeover of Mindtree in 2019, sparking speculation about a merger of the two companies. The takeover was a messy affair, but Naik claimed it was not a hostile takeover. He had said that they were approached by one of the shareholders, referring to the late Cafe Coffee Day promoter and Mindtree investor VG Siddhartha.

Debashis Chatterjee told Moneycontrol in October, following Mindtree's Q2 results, that there is a separate team working on the overall integration plan, structure, and more, and that it is ready to roll out. Both entities' managements said at the time that they were awaiting written legal approvals, which were expected soon.

The two companies are expected to announce their combined results beginning in the third quarter.

The most attractive thing about this merger is there is no overlap, he had said. “For example, LTI is very strong in terms of supply chain transformation, and Mindtree is very strong in terms of customer experience transformation. If you look at the strengths, they can really be complementary to each other and will be only beneficial,” he told Moneycontrol earlier.

He claims that the entity will have access to over 700 clients, with very little overlap. He had said that there are only a few common clients, and even for those, the two companies work in different areas.

LTI COO Deshpande had told Moneycontrol in October that the two companies are “complementary to each other on sectors, on geographies and on service lines.”  This makes the combined portfolio more resilient than on their own and if there are sectoral headwinds, they can compensate for that in the other sectors.

Deshpande had said they are not expecting any merger-related disruptions or distractions.
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