L&T Infotech, Mindtree merge to form $18b firm

Merger of two firms creates India’s 6th largest tech firm

Mumbai, May 6: Aiming at bigger deals from clients looking for digital services, the L&T Group on Friday announced a merger of L&T Infotech and Mindtree, which will create the country’s sixth largest information technology company with combined revenue of $3.5 billion. The combined market capitalisation would be $17.69 billion.

The engineering, projects and construction major, which already owns a majority stake in both the companies, said as per the all-stock deal, shareholders of Mindtree will get 73 shares of LTI (L&T Infotech) for every 100 shares they hold.

L&T will hold 68.73 per cent in the merged entity which will be called ‘LTIMindtree’.

The merger is expected to be completed in the next eleven months after required approvals. The merged entity will be led by Debashis Chatterjee.

LTI’s CEO Sanjay Jalona has resigned due to “personal reasons”, L&T’s chairman A M Naik told reporters here.

Naik said the average deal size for the companies has been $25 million right now, and it has already had clients suggesting a merger, which will help it participate in bigger projects.

He said it will be able to bid for deals of over $100 million once the merger creates a bigger entity.

The merger announcement comes at a time when the bigger players in the IT industry have been speaking about deal sizes getting smaller as a large part of the contracts now are digital deals.

The L&T management, however, said that it is not able to participate in bigger deals because of smaller revenue and balance sheet sizes, and asserted that this was the right time to go for the merger.

He exuded confidence that the revenue of the merged entity will touch

$10 billion in five years from the present $3.5 billion, and stressed that all the budgets and targets of both the companies for

FY23 will be chased independently.

An integration committee will be put in place to anchor the merger process that will create a single entity with over 80,000 people, and it will be independent of the business teams, who will continue to chase business amid the surge in demand for IT.

“We are confident that the proposed merger will help us build on the combined strengths of both these organisations to unlock synergies through scale, cross-vertical expertise, and talent pool,” S N Subrahmanyan, chief executive of L&T, said, pointing out that while LTI is strong in areas like ERP and insurance, Mindtree is more strong on new-age digital businesses and customer service.

Naik made it clear that far from retrenching any employees, the demand for services is so strong that it will be seeking to add 15-20 per cent more people. He also said that the confidence instilled in the employees can help the confidence of workers and decrease the high attrition by 1 per cent.

Naik said in the next 2-3 years, he sees 40 per cent of the group’s market capitalisation coming from digital and IT services companies like LTIMindtree.

LTI was started as a unit within L&T in 2000, while Mindtree was acquired three years later in a deal which faced resistance from its promoters. However, Naik made it clear that the acquisition of Mindtree was not a hostile takeover. The LTI scrip closed 3.64 per cent down at `4,593.10 a piece on the BSE, while Mindtree shed 3.88 per cent to `3,374.85 a piece, as against a 1.56 per cent correction in the benchmark.