NEC competes with KKR & Advent to buy CCD owner's Mindtree stake

MUMBAI: NEC, one of Japan’s oldest and biggest IT services firms, is competing with bulge bracket buyout funds like KKR & Co and Advent International to buy 20.3% in mid-tier software services firm Mindtree, owned by Cafe Coffee day owner VG Siddartha.

This would suggest foreign investors’ continuing attraction towards domestic technology sector is not waning.

The transaction, if successful, may also see exit of some more minority shareholders, and the new investor will be able to garner control of the company, multiple sources close to the negotiations, told ET.


Though valuations and other terms of the deal are yet to be negotiated, as per Wednesday’s closing price at the stock exchange, Sidhartha’s 20.3% is valued at Rs 2,833.51 crore.

Siddhartha has mandated Kotak Mahindra Capital to run a formal process, sources said.

The prospective investors have also begun negotiations with the large Indian and institutional investors of the company, sources said. The buyers are seeking to corral 26% stake and make an open offer under the SEBI approved takeover guidelines.

When contacted, Mindtree, KKR and Advent declined to offer comment for this story. NEC did not respond to a mail seeking comments sent on Tuesday.

VG Siddhartha also did not respond to an emailed questionnaire till press time.

Apart from a 3.6% stake in Mindtree, Siddhartha holds 10.64% through Coffee Day Enterprises and 6.45% through Coffee Day Trading in Mindtree.

The promoters, including its chief executive officer Rostov Ravanan, own 12% stake in the company.

Mindtree’s portfolio investors include Canadian pension fund manager Ontario Teachers’ Pension Plan Board, Vanguard Group, CoptHill and Singapore-based pan-Asian investment firm Nalanda Capital.

Founded in 1999 by10 individual investors including Siddhartha, the Bengaluru-headquartered company employs 17,500 people across 43 offices in 17 countries.

Mindtree posted 36.2% growth in its net profit at Rs 570 crore for FY18 and with revenue of Rs 5,462 crore, which grew 3% over the previous year. The company expects margins to expand further after the revenues of acquired entities reflect in the consolidated balance sheet.

“Strong margin growth and improved performance of Bluefin and Magnet 360 will also help get better margins on FY19,” CEO Rostov Ravanan told ET on April 18, soon after its earnings.

NEC has been looking at opportunities in the India’s fast-growing technology space that has become a $120-billion market in a span of 15 years. The firm has offices in India and has bought out HCL technologies’ stake in one of its joint ventures in NHST, which provides engineering solutions in embedded software, hardware design, network and security, high performance computing and mobile technologies to NEC and its subsidiaries.

In 2016, NEC made a strong attempt to acquire HP’s stake in MphasiS. However, private equity group Blackstone finally acquired the firm in a $1 billion deal.

Consolidation in the mid-tier IT and ITeS segment is on the rise as global strategic investors are more interested in buying local firms because of a sharp decline in currency and a sharp surge in valuations prompting existing investors to exit.