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In a rather intriguing diversification of strategic direction, Mumbai-based offshore IT services firm Tech Mahindra is to subsume sibling engineering consultancy Mahindra Engineering Services (MES). MES is one of a number of subsidiary companies of Mahindra Systech, which provides components and services to the automotive and other ground-based mobility industries globally. Ultimate parent Mahindra Group is one of India’s leading industrial conglomerates, with turnover in excess of $16bn. Get it? Got it! Good.
In the grand scheme of things, this is like a fill-in acquisition; MES will only add some 1,300 employees to Tech Mahindra’s 85,000-strong workforce, and will top up Tech Mahindra’s revenues near-$3bn revenue run rate by just another $40m. But the merger sends a clear signal that management want to further diversify from Tech Mahindra’s telecoms-focused heritage to build a ‘second string’ vertical in the manufacturing sector, the ‘strong suit’ of the previously acquired Satyam. As an engineering consultancy, MES should also bring extensive ‘domain’ skills to Tech Mahindra and provide a consulting front-end to its traditional IT services activities, which include technical engineering software development.
As a side note, this merger will pitch Tech Mahindra more squarely against rival L&T Infotech (LTI), the minuscule IT services subsidiary of Larsen & Toubro, the $14bn Indian industrial engineering and construction conglomerate. LTI was one of the original bidders for Satyam and once had aspirations to become a major player on the offshore services stage (see If we don’t get Satyam we’ll buy someone else! and related posts). Alas it was not to be.