In a dramatic and not totally unexpected turn of events, construction giant Larsen & Toubro (L&T) this week completed the hostile takeover of the Bengaluru-based IT company Mindtree. This move has been long and coming for many months, as Mindtree fought tooth-and-nail against this move. This event marks the first ever hostile takeover in the Indian IT sector.
Now, in an expected move, Krishnakumar Natarajan, Executive Chairman, NS Parthasarathy, Executive Vice Chairman and COO and Rostow Ravanan, CEO and MD have submitted their resignations as members of the Board of Directors at Mindtree Ltd and as employees of the company. According to an official statement by the company, the trio will stay as Board members till 17 July 2019 and as employees in line with their employment contracts to ensure a smooth transition.
The exit of the Mindtree trio triggered a downward spiral for the stock — closing down 10.43% after dropping 14% intra-day on Monday in a market that dropped 2%.
What Changes Will Their Analytics Units See
Scope In The Analytics Market For Both: As the global market for analytics and SaaS is growing all across the world, players like Mindtree and L&T Infotech are also gaining importance. The global economy is rapidly growing and the demand for cloud-based analytics and real-time data analytics is also creating new opportunities for in this space. Due to increased growth and competition in the e-commerce industry as well as the service sector, there is an undersupply of analytics solutions providers. Add to that, a lack of skilled personnel and a high rate of attrition, and we can see why L&T was eager to have Mindtree under their umbrella.
“We do believe that compared to the big boys like TCS, both L&T Infotech and Mindtree have enough headroom to grow. They are still sub-scale. Other than one or two clients, there is hardly any overlap,” R Shankar Raman, the chief financial officer at Larsen & Toubro, had told a noted financial daily.
L&T’s Expanding Suite: This is not the first time that L&T has made an investment to grow inorganically. For example, in 2016, LTI acquired AugmentIQ Data Sciences that specialises in Big Data. In 2017, they acquired Syncordis SA for pureplay core banking implementation. Earlier this year LTI bought the US-based Ruletronics which is into the Pega implementation space. In fact, experts suggest that Mindtree was a carefully thought-out move for L&T in making a specific investment for opportunities in horizontals where they have yet to have a foothold.
Yin And Yang Range Of Products Between L&T And Mindtree: Mindtree provides solutions in data analytics, cloud, infrastructure management, and application development and maintenance. With a strong foothold in a market that has broken the glass ceiling but hasn’t yet reached saturation yet, this move, despite the board’s initial resistance, will help them move forward with a renewed capital inflow.
L&T, on the other hand, works on a diverse portfolio, which includes construction, mining, electric and automation, engineering, hydraulics, metallurgy and power, among a slew of other sectors. Their tech arm, L&T Infotech (LTI) works with mobile, social, analytics, IoT and cloud journeys, among others.
Individual Strengths Maintained: Even L&T has maintained that they are not looking at merging LTI and Mindtree, experts suggest that “a quick three-way merger” of LTI, L&T Technology Services and Mindtree would have been ideal. This, a newspaper said, would have created an entity which could compete head-on with big names in the analytics market like Wipro and TCS.
However, L&T’s SN Subrahmanyan, told a financial daily that Mindtree will be run as a separate entity, distinct from L&T Infotech and L&T Technology Services. “The entities would be run at an arm’s length and it is inappropriate to speculate about the future structure now. Continuity will be the key theme in the management transition. No position is sought to be disturbed at Mindtree, and no changes are contemplated right now.”
What Can We Expect After This Deal
A management change for Mindtree is already underway. Shriram Subramanium, Managing Director of proxy advisory and corporate research firm Ingovern, told a financial daily, “The investors in Mindtree will have to endure the transition phase for the next three-four months, which is likely to see a reconstitution of the board and perhaps a new CEO is being brought in… L&T will exert its influence through the board and will set expectations for the new CEO and the CXO team.”
Even though the stock market is in turmoil right now, with Mindtree shares losing almost a quarter of their value, this hostile takeover by L&T might not really be a bad thing. Firstly, it will add value to L&T’s vast suite of products, and secondly, the industrial giant’s sound financial background will help add more products, research and development opportunities for Mindtree.