Building size advantage

The merger of LTI and Mindtree will create an entity with annual sales of $3.5 billion. At that level, it would be the 6th largest IT company after TCS, Infy, Wipro, HCL Tech and Tech Mahindra. The combined entity will have over 80K employees and over 681 clients on its rolls. Size is a major advantage when it comes to bids for big deals, especially the ones with value of over $100 million in terms of annual billing revenues. 

Formalizing an arrangement

Top managers at both the companies have pointed out that, even before the merger, LTI and Mindtree were making joint bids for most projects. There was already a revenue sharing and task sharing arrangement between them. So, this merger just formalizes a structure that is already in existence. Both have unique strengths with LTI more active in core IT and engineering while Mindtree has a much stronger franchise in the digital space. The combination will give the combined entity clout when it comes to bidding at par with the large IT names for major global projects. This is the most lucrative space in IT markets. 

A service orientation offered

One of the biggest advantages that L&T sees in this merger is that unlike LTI, which is a home grown company with L&T DNA, Mindtree is a total outsider. They bring a service DNA with a strong digital franchise. In a short span of 2 decades Mindtree managed to build a very formidable client base. It is not a big surprise that the CEO of Mindtree, Debashish Chatterjee, will lead the new entity. It clearly shows which way the L&T management wants to drive the IT business in the group. It is also likely to be a better sum-of-parts story for L&T, which gets a big chunk of its market cap contribution from its IT business model. 

Making IT future ready

The merger gives the combined entity a good mix of traditional outsourcing flows and new digital revenue lines. That will build stability and growth into the business model of LTI Mindtree. The expectation is that the next few years could see a geometric explosion in the demand for IT services with a strong focus on digital services like analytics, social media, cloud, SAAS and mobility. These are the big add-ons that Mindtree will bring to the merged entity. Then there is LTTS, which is the 3rd IT name in the group and that could also be merged at a future date. This makes the business model of L&T less dependent on the capital investment cycles. That is something invaluable for the giant.