Not so long ago — 2009, to be specific — one of India's promising IT services companies Satyam lay dismembered by one of the largest and most brazen accounting scams to hit India in recent memory. Think of it as India's Enron, where over $1.5 billion of losses were swept under the carpet by a wily promoter who used the diverted funds to invest in real estate.
It doesn't sound like much when compared to what Bernie Ebbers or Andrew Fastow had cooked up previously, but for a next-gen company that was in the more sedate and predictable environment of software services, this was nothing short of cataclysmic.
One individual and his company saw an opportunity amidst the wreckage. The Mahindra Group, with interests ranging from aeronautics to agriculture and led by the urbane and polished Anand Mahindra, who is generally regarded as one of India's more upstanding and plain-speaking businessmen, realised that here was a golden opportunity to slip into a business domain that it wasn't yet in, but had been contemplating for years.
Swallowing a scandal-ridden entity may have been daunting at first, but the savvy Mahindra probably did a quick back-of-the-envelope calculation and realised that he was getting something dirt cheap. Some quick surgical procedures to get rid off all the rot, and voilà, what he had in hand was probably infinitely cheaper than building an IT organisation from scratch.
A few days ago, Tech Mahindra — or just TechM, as the entity is now known post the acquisition of Satyam — made one more decisive step towards entrenching itself in India's elite IT club by snapping up Lightbridge Communications, one of the world's biggest telecommunications network engineering services providers based in McLean, Virginia. TechM instantly adds 20 to 30 global clients to its kitty, but it also has to integrate 5,000 employees across 50 countries.
The company, which posted $900 million in sales in the September quarter versus behemoth Tata Consultancy Services' $3.93 billion, has aspirations to reach $5 billion in revenue in 2015. By tacking on LCC's more than $400 million in annual revenue to its books, it stands a good chance of achieving that target.
The marriage between TechM and LCC appears to be a perfect marriage of software and engineering blended to provide technology services to communications service providers. TechM appears to be the solo Indian player of any significance in the $40 billion network services space, where bigger sharks like Alcatel-Lucent and Ericsson McLean rule. On the other hand, Lightbridge's core expertise lies in radio engineering and network design, and it has built and designed more than 350,000 cell sites for more than 400 customers worldwide. The union will create "the industry's largest network engineering, deployment, and managed services organisation", in the words of LCC's CEO Kenneth Young.
While this is TechM's largest acquisition, it is its third this year. The company has been chipping away at spreading its wings inorganically. In February this year, it picked up the information technology services arm of Germany-based chemical company BASF, and then in April, it snapped up a 75 percent stake in US-based big data startup FixStream Networks Inc for $10 million. Its largest acquisition to date outside of the current Lightbridge deal was of Hutchison Global Services for $87.1 million.
Expect TechM to continue making big plays like this, albeit in niche areas so it can go toe-to-toe with the other Indian biggies on its own terms.