Tech Mahindra is continuing its aggressive acquisition strategy with the purchase of Sofgen, a niche Swiss IT services and consulting player in the private/wealth management space. This acquisition will provide Tech Mahindra with access to Sofgen’s customers and bolster its capabilities in the banking and financial services (BFSI) segment, mainly in Europe and Asia-Pacific.
Sofgen acquisition brings greater depth to Tech Mahindra’s financial services practice
The Sofgen acquisition, which has an estimated value under $30m, will enable Tech Mahindra to leverage Sofgen’s expertise in the core banking systems implementation and transformation space – especially around Temenos and Avaloq, two very popular core banking platforms. The deal will also allow Tech Mahindra to cross-sell and upsell its full portfolio and augment its existing Temenos-related offerings. Moreover, Tech Mahindra will be able to extend its relationship with Sofgen’s existing clients in Europe, Asia-Pacific, and Africa, with Sofgen’s clients including some of the leading players in the private/wealth management space in these geographies.
The acquisition will help Tech Mahindra revive its financial services practice, which experienced a major setback when key clients exited following its acquisition of Satyam Computers. Moreover, the addition of Sofgen to Tech Mahindra’s existing basket of acquisitions will strengthen its position as an end-to-end provider of services across telecoms, communication, network, and IT services – a position not many offshore vendors can claim. Combined with Tech Mahindra’s efforts around building consulting prowess, analytics, and partner ecosystems, the addition of Sofgen will provide an attractive go-to-market for Tech Mahindra’s BFSI portfolio.
Tech Mahindra has also signed significantly large contracts during the past year, validating our assessment that its current business model is gaining traction, and that the company is recovering from the drawn-out effects of its Satyam merger. Strategic acquisitions are a good way for the company to augment its organic growth rates of well over 20%, as it chases its goal of exceeding $5bn in revenues by the end of the fiscal year 2015 (with its financial year ending March 2016). However, to achieve this, Tech Mahindra will need to increase its footprint in the lucrative North American BFSI market, which has witnessed an upswing in spending during the past few years. To this end, we expect Tech Mahindra to undertake at least one strategic acquisition focused on building scale in North America. However, the key challenge for Tech Mahindra remains its ability to rapidly assimilate acquisitions and clearly communicate that it is quickly becoming a vendor with competitive weight.
Hansa Iyengar, Analyst, IT Services