InvestorQ : What are the major synergies you see from the possible merger of L&T Infotech and Mindtree?
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What are the major synergies you see from the possible merger of L&T Infotech and Mindtree?

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Mary Joseph answered.
4 weeks ago
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While the merger is yet to be officially announced, both the boards of LTI and Mindtree are expected to meet in the middle of next week to seek approval for the proposed merger. For now, the companies are tight-lipped but we should get more details soon. Here are some of the major takeaways from the likely merger.

a) The merger has been touted as a possibility for a long time and hence the question was not whether but about when. Larsen & Toubro is now keen on pushing the $22 billion merger to create an IT behemoth to really take on the best in the global it business.

b) The merger would just be a formalization since L&T Infotech (LTI) and Mindtree have been collaborating on projects and sharing resources and mutual skill sets for the last few years now. The relationship will just move from an informal level to a formal level.

c) One of the big advantages to the merger would be that there is very little by way of business overlap between the business models of LTI and Mindtree. This makes a strong case for the whole being more valuable than the sum-of-parts.

d) The merger will catapult the combined entity to the top league of IT firms. This will beneficial at multiple levels like the ability to tap into larger market opportunities, sharply and aggressively drive down cost and also to de-risk the business model.

e) In a way, LTI and Mindtree are even currently collaborating on many areas. Normally, either Mindtree or LTI is assigned as the primary client engagement partner, with the other firm playing a supporting role. Revenue share is split evenly for such projects.

f) LTI commands a market cap of Rs.1.04 trillion and Mindtree a market cap of Rs.66,000 crore. Combined revenues will be around $3.5 billion, positioning the combined entity just below Tech Mahindra in the revenue rankings in the big bucket Indian IT industry.

g) Strategically, LTI has a strong presence in BFSI and then in manufacturing. On the other hand, Mindtree is its largest focus on hi-tech and media followed by retail and CPG. Mindtree is also digital inclined in its model and there is minimal client overlap.

h) The deal will also empower LTI and Mindtree to cross sell their services as well as upsell their products. Also the larger balance sheet will give them more firepower to take on competition and handle the risks (like Mindtree’s 30% exposure to Microsoft).

To sum it up, it is still now clear which company will subsume the other and who will get the management clout in the new venture. Also there are question on what happens to LTTS, another group IT company. But, these are issues that will be ironed out along the way.

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