)
Tech Mahindra, India's sixth-largest information technology (IT) services and solutions firms, plans to double the revenue from the banking, financial services and insurance (BFSI) vertical over the next three years.
"At present, BFSI is about 10 per cent of our revenue pie. In the next three years, we want to take this to 20 per cent," said Ravi Vasantraj, global head (BFSI) at Tech Mahindra. "We are already working on a large deal with SOFGEN (a Sweden-based IT consulting group specialising in private, commercial and retail banking). This acquisition gives us the ability to tap into opportunity worth $300-500 million," added Vasantraj.
Tech Mahindra - which has been on an acquisition drive, adding capability in niche areas and expanding footprints in new geographies - acquired Swedish firm SOFGEN recently. This is Tech Mahindra's first acquisition in the banking space. SOFGEN is a niche player in the core banking system, wealth management, commercial and retail banking solutions. It has at least 20 odd tier-I banking clients.
According to Vasantraj, the acquisition will allow the firm to scale its presence in the BFSI space. "When we acquired Satyam, we lost several of the Tier-I customers. Over the past four years, we have been able to grow this practice well; we have registered a compounded annual growth rate of 18 per cent. With this acquisition and access to around 20 large customers, this gives us the ability to scale faster," he added.
Vasantraj says the acquisition gave the company instant presence in Europe, as well as access to logos, which can be the engine of future growth for the firm. "What I mean by engines of growth is we can take Tech Mahindra's full services portfolio to these large players and leverage our services offering," Vasantraj explained.
Most the company's acquisitions have been in the telecom space. According to analysts tracking the firm, the SOFGEN acquisition was a big positive for Tech Mahindra. "TechM derives about 10 per cent of revenue from BFSI. The company has witnessed increased traction in BFSI over the past four quarters growing at a CQGR (compounded quarterly growth rate) of 7.1 per cent, compared to overall revenue CQGR of 4.4 per cent over the same period. We see the current investment to further strengthen their presence in BFSI," said Shashi Bhusan of Prabhudas Liladhar in his note.
SOFGEN will add 450 employees to Tech Mahindra's headcount. What was also key for the acquisition is that SOFGEN has the second-largest pool of Avaloq Consultants (wealth management product) and is Temenos' (core banking software) most prolific partner.
"TechM is acquiring SOFGEN for sub-$30 million (one-third as earn-outs paid over the next two years depending on revenue and margin growth) in all cash deal and it will add revenue of $45 million with Ebitda (earnings before interest, taxes, depreciation and amortisation) margin of 8-9 per cent to TechM's P&L (profit and loss statement)," said the Prabhudas Liladhar report.
When asked if the acquisition was a bit too late considering that many of its peers were bigger in the BFSI space, Vasantraj said: "If you look at our September (2014) quarter numbers, we reported 22 per cent revenue growth year-on-year. We have been the fastest-growing company. The acquisition scale might be small, but our focus has been micro-verticals. SOFGEN is a well-known player among wealth managers and private banking. This fits in our differential strategy. We are choosing our spots and going ahead and SOFGEN is an example of that strategy."
According to Vasantraj, banking & finance is a mature segment. "We have been on the lookout for acquisition for a long time. We want to scale and, hence, acquisition will be key. But it has to fit into our strategy. In the banking and finance space, acquisitions have been primarily in the product space," he noted.
