Baring PE on April 5 announced the acquisition of a 30 percent stake in NIIT Technologies (NIIT). Experts believe this opens up the possibility of the PE firm considering a merger of NIIT with Hexaware, another Mumbai-based mid-cap IT company in which it owns a majority stake. A merger would prove beneficial for both the companies, experts said.
Baring is now looking to raise its stake in NIIT to 56 percent via an open offer for another 26 percent shares. The total offer on the table is Rs 4,890 crore at Rs 1,394 per share.
Though Rajendra S Pawar, Chairman, NIIT Technologies in a recent media interaction said Baring will not merge the entities for the next two years, the merger could benefit both the companies, say industry players.
“In all probability, NIIT Tech will be merged with Hexaware, and the combined entity will have close to a billion dollars in revenue. There are customer synergies, and large deals require you to show a strong balance sheet,” said Kris Lakshmikanth, CEO, Head Hunters India, an IT staffing firm, in a recent report.
NIIT reported a net profit of Rs 100 crore on a revenue of Rs 971.7 crore for the December 2018 quarter. Hexaware's net profit was 123.4 crore for the same quarter on revenue of Rs 1,252 crore.
For instance, NIIT has focused a lot on the travel vertical in recent times whereas Hexaware is strong in the BFSI vertical. While NIIT has a strong presence in Europe, the Middle East and Africa with revenue accounting close to 35 percent, Hexaware is strong is Americas at 76 percent.
Yugal Joshi, Vice President, Everest Group, a management consultancy firm said, both are small vendors and will benefit from this combination given the portfolio are complementary.
“Both providers have aspired to build infrastructure services capabilities, but have struggled. My sense is that this is an area which Baring would need to focus on,” he added.
In the last couple of years, NIIT changed its strategy to focus on digital and only on three verticals - banking and financial services, insurance and travel and transportation.
The company also made significant additions at the top and these officials will be based at client locations.
Arvind Thakur, Vice Chairman & Managing Director, NIIT, said in a recent interaction with Moneycontrol that digital has become a significant portion of the business and the company reorganised its structure to focus on digital experience, analytics, cloud and digital integration.
It is also now looking at new emerging technologies, particularly around artificial intelligence and blockchain.
Joshi said Baring would have to further these capabilities in NIIT to position it as a niche provider for these industry verticals.
As the rein of the company changes hands, there are new challenges as well. Joshi said, “Promoter-owned companies where they play significant operational roles have their own culture, which may not sustain in the rapidly disrupting world today.”
“Baring would need to further enhance professional approach of NIIT’s go-to-market strategy solution development, and leveraging external advice to drive transformation,” he added.