L&T Infotech and Mindtree have received approval for a merger and will start operating as a merged entity from November 14, making it the country's fifth-largest IT provider by market cap and sixth-largest by revenue. This is one of the largest mergers in the Indian IT sector.
The combined entity, called LTIMindtree, will benefit from scale, allowing it to pursue larger outsourcing contracts as clients look to consolidate vendors in an increasingly challenging macro environment.
L&T Group Chairman AM Naik said the merger has been approved by both the Mumbai and Bengaluru benches of the National Company Law Tribunal in two separate orders.
Naik said that currently, the merged entity along with L&T Technology Services (LTTS) is at $5.6 billion in revenue. Next year, LTIMindtree alone will cross $5 billion in revenue, he said.
Mindtree will be delisted from the stock exchanges and LTI will be rebranded as LTIMindtree from November 24 said Vinit Teredesai, the Chief Financial Officer of the combined entity.
The merger will help L&T achieve its goal of expanding the IT-enabled services to 25 percent of the group's total business by 2026, Naik said. "It might be even higher when it comes to market cap," he said.
Naik said the entity is uniquely positioned to combine and scale by competing for larger deals, and offers greater ability to stick together for end-to-end offerings and deeper engagement in hyperscalers to drive significant value.
LTIMindtree hopes to go from good to great and have double-digit growth rate in the next five years, Naik said.
LTI-Mindtree as well as LTTS will continue to operate independently even though they are part of L&T Group, he added.
L&T had previously said that it expects IT services to contribute at least 40 percent of its market capitalisation over the next 2-3 years.
The merger of the two L&T software units was announced on May 6 and was expected to be completed by the end of the year. L&T Limited now owns 68.73 percent of LTI. Mindtree shareholders will be issued LTI shares at a ratio of 73 LTI shares for every 100 Mindtree shares.
The companies had a combined headcount of 89,271 as of September 30, 2022.
A steering committee was formed to oversee the merger proceedings, with members of both companies' management putting in place plans and the structure for the joint entity.
Mindtree CEO Debashis Chatterjee will lead the combined entity. The choice of Chatterjee as CEO of the combined entity was based on his prior experience at Cognizant, where he was responsible for delivering technology services across all industry segments. LTI's former CEO Sanjay Jalona left the company in May this year.
At Cognizant, LTI Chief Operating Officer Nachiket Deshpande also reported to Chatterjee.
"LTIMindtree will benefit from revenue synergies on upselling, cross selling and stitching services together," Chatterjee said, adding that the merged entity will get access to a lot of industries and verticals which they couldn't individually.
Chatterjee, the CEO of LTIMindtree, said the focus of the combined entity will be on cross-selling and upselling. He added that for large deals, they are hoping to get a seat at the table as the size of the organisation matters as well.
"Some parts of cost synergies are natural for instance in real estate. But that will happen over time. Cost synergies will be more back-ended while revenue synergies will be front-ended," he added.
L&T completed its hostile takeover of Mindtree in 2019, sparking speculation about a merger of the two companies. The takeover was a messy affair, but Naik claimed it was not a hostile takeover. He had said that they were approached by one of the shareholders, referring to the late Cafe Coffee Day promoter and Mindtree investor VG Siddhartha.
Debashis Chatterjee told Moneycontrol in October, following Mindtree's Q2 results, that there is a separate team working on the overall integration plan, structure, and more, and that it is ready to roll out. Both entities' managements said at the time that they were awaiting written legal approvals, which were expected soon.
The two companies are expected to announce their combined results beginning in the third quarter.
The most attractive thing about this merger is there is no overlap, he had said. “For example, LTI is very strong in terms of supply chain transformation, and Mindtree is very strong in terms of customer experience transformation. If you look at the strengths, they can really be complementary to each other and will be only beneficial,” he told Moneycontrol earlier.
He claims that the entity will have access to over 700 clients, with very little overlap. He had said that there are only a few common clients, and even for those, the two companies work in different areas.
LTI COO Deshpande had told Moneycontrol in October that the two companies are “complementary to each other on sectors, on geographies and on service lines.” This makes the combined portfolio more resilient than on their own and if there are sectoral headwinds, they can compensate for that in the other sectors.
Deshpande had said they are not expecting any merger-related disruptions or distractions.
