Acquisition to boost its presence in financial sector.
By R. Chandrasekaran
CHENNAI: Tech Mahindra, which depends heavily on telecom vertical, will enter the financial vertical space by acquiring the South India-based Polaris Financial Technology’s IT services unit.
Tech Mahindra, which had bought Satyam Computers after the latter’s promoter B. Ramalinga Raju admitted one of the biggest corporate scams in 2009, had completed the process of Mahindra Satyam merger with it only recently by allocating one share of Tech Mahindra for every 17 shares of Mahindra Satyam.
A report in the Business Standard claimed that Tech Mahindra is in advanced stage of negotiations with Polaris Financial Technology to buy their IT services unit. Tech Mahindra seemed to have already started a due-diligence process and is said to be ready to pay around the amount that Polaris expects.
The IT services business of the Chennai-based Polaris generated revenue of $330 million in 2012-13 and is expecting the division worth more than $400 million.
Tech Mahindra’s intention is quite understandable as they are heavily dependent on telecom vertical since nearly 50 percent of its revenues come from British Telecom, who are their biggest client. Therefore, to cut down its dependence on one big client and the sector, the company needed to scout for a worthwhile acquisition that could not only generate revenues from other verticals but also provide growth opportunities in the years to come.
For this, Polaris seems to fit into the scheme of things very well since they offer services in the field of banking, finance and insurance portfolios. Considering that the rivals generate significant revenue from the financial services, Tech Mahindra’s intention to buy Polaris’ IT services could allow them only to earn approximately ten percent of its revenue, which is lower than its competitors.
Polaris had split its business into two segments previously, one aimed at providing services and the other for products. The company has been in the news for selling its services division for over six months now. The Mumbai-based L & T evinced interest in Polaris’ IT services division, but the company seemed to have backed out of the negotiations leaving the fray open to Tech Mahindra.
Though bigwigs such as Infosys, Wipro and HCL Technologies have also shown interest initially, mainly to get Citigroup as a client, they are not in the picture as of now.
It would have been tough for Tech Mahindra to enter the financial services sector and compete with big rivals such as Infosys and earn a name to reckon within a short span of time. Therefore, the best course available for it is to buy a company and then expand presence.
Now that Infosys’ quarterly results indicated an improved situation in the U.S. market, especially North America, the interest on financial services vertical is a good addition for Tech Mahindra. An announcement could be expected in a few weeks’ time.