Management Development

Institute
CRBV PROJECT REPORT

Topic - L&T and Mindtree – Deal Structure and

Valuation

Submitted to: Prof. Ashutosh Dash

Submitted by: Group 8, Section A, CRBV

Group 8, Section A
Diksha Miglani 19P080
Mayank Arora 19P094
Puneet Garg 19P101
Punyaja Swaroop 19P102
Rashi Jain 19P105
Sunkara Vamsi Krishna 19P117
Table of Contents
Content Page Number
About the company 03
Industry overview 06
Rationale of restructuring 11
Alternatives explored for restructuring 15
Deal Valuation 17
Structuring the deal 20
References 22

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 LETTER OF TRANSMITTAL

Management Development Institute

Department of Post-Graduation Program in Management
Group – 8, CRBV Section A
MDI, Gurgaon
7th September, 2020
Professor Ashutosh Dash
MDI, Gurgaon
Dear Professor
With due respect, we the undersigned students of PGPM 2019-21 batch have
reported on “L&T and Mindtree – Deal Structure and Valuation” under the
course Corporate Restructuring and Business Valuation.
It is indeed great pleasure for us to be able to hand over the result of our hardship
of the report. This report is the result of the knowledge which has been acquired
from the respective course.
We tried our level best in preparing this report. The information in this report is
from published report, books, primary research and secondary research done by the
group.
We, fervently hope that you find this report worth reading. Please feel free for any
query or clarification that you would like us to explain. Thank you for providing us
this opportunity and guiding us throughout the curriculum.

Thank You
Yours’ Sincerely
Group - 8
CRBV, Section – A

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I. ABOUT THE COMAPNY

L&T
L&T is a technology, engineering, manufacturing, construction and financial
service conglomerate. With critical sectors being – Infra, Defence, Hydrocarbon,
Power and process industries. It is present across thirty countries in the world.
Sustainability is included in the company’s long term growth strategy.
L&T’s manufacturing spreads across nine countries including India.
L&T has two subsidiaries in the technology space –

L&T Technology Services Limited (LTTS) – This Company is an Engineering

Research and Development (ER&D) service company. Its customer base has sixty
nine fortune 500 companies. It provides design and development solutions in areas
of embedded systems, manufacturing engineering, mechanical engineering, plant
engineering and engineering analytics.

L&T has a digital solution arm – L&T Infotech

L&T infotech was incorporated as a subsidy of L&T in 1997. L&T infotech is a
global digital solutions and IT consulting company. Its customer base is currently
around 420 major clients. The company has developed depth in e procurement and
e marketplaces based on internet and helps their integration with Enterprise
solutions such as SAP. It enables analytics, cloud, IoT, mobile and social journeys
of its clients. This subsidiary of L&T is currently operating in thirty-two countries.
L&T infotech has twenty-three software development centers and forty-four sales
offices and hence has a vast global presence.

Due to the COVID pandemic, this quarter has seen a decline in profits for L&T
despite the increase in the number of orders. Revenue has increased by 2% to Rs.
44245 crores. Net profit reduced by 6.5% to Rs. 3197 crore vis-à-vis last year. Its
operating profit reduced 3% to Rs. 5121 crore and margin reduced 60 bps to
11.6%.

For L&T Infotech -

Revenue growth was majorly led by CPG, Retail, Pharma, Manufacturing, Energy
and utilities and BFS. Strong contribution has been from the medical devices
vertical. In Q1 FY21, its sales have increased by 18%, operating profit by 29% and
net profit by 17% vis-a-vis Q1 FY20. However, with respect to Q4 FY20, its sales
have reduced by 2% and net profit reduced by 2.3 %.
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At L&T continuously enable companies with innovative technologies to
collaborate between individuals and between people and machines. This reduces
friction and deepens knowledge to enable quick decision making. A special IT
group is formed to withhold users. A special working group has been set up under
the Chief Information Security Officer (CISO) to monitor all cyber security
developments, manage the organization and create a cyber-secure environment for
business transactions. The virtual presence test by IT was tested when employees
had to switch to WFH (Work from Home) mode for the first time due to the
sudden failure caused by COVID-19. IT systems built during the reporting period
ensured a smooth transition. Additionally, the company's IT infrastructure has been
updated and changed to enable WFH for almost all employees and allow them to
connect between locations without worrying about productivity losses. This
allowed the company to act as usual at unusual times.

Mindtree
Mindtree is a global digital services and technology consulting company born in
1999. Its client base is over 340 enterprises which rely on Mindtree for in-depth
domain knowledge, solve the digital complexities and to bring new initiatives in
market. It offers customized solutions with an extensive range of services. Major
digital solutions include – giving real time recommendations, social media
intelligence, and productivity of workforce, IPs, customer analytics etc. Main focus
of the company is towards the digital transformation of its clients. Mindtree has a
global presence with its offices across India, UK, US, Switzerland, Australia,
Germany, UAE, Japan and Singapore. In June 2005, Mindtree acquired 100%
stake of Linc Software Services Private Limited. Linc was into the business of
Enterprise Resource Planning, Product support, Web Development and
Application Development & maintenance. In 2006, the company’s status changed
from private limited to public limited company.
With major industries where clients are present are – Retail. Banking, Financial
service & insurance, Manufacturing, CPG, Travel and Hospitality, Media and High
Technology. Known for its domain expertise and technological capabilities,
Mindtree has become a trusted service provider.
Last year, Mindtree was acquired by L&T on 2nd July 2019. Results of Mindtree
were consolidated from Q2 of FY20 post the above-mentioned date. In FY20,
Mindtree’s growth was led by Travel & Hospitality and High tech & media.

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For the combined IT segment in L&T, net revenue rose by 54% and EBIDTA
margin fell from 23.2 in FY19 to 20.9 in FY20. This margin variation was a result
of increase in resource cost.
For Q1 FY21, Mindtree’s revenue growth is contributed by Media, Technology
and Communications vertical. Mindtree’s sales increased by 4%, operating profit
by 74% and net profit by 129 % vis-à-vis the figures for Q1 FY20. Because of an
impact of COVID, with respect to last quarter (Q4 FY20), Mindtree’s sales fell by
7% and operating profit by 0.5 %. Net profit rose by 3.3% vis-à-vis Q4 FY20.
For the combined IT and technology service segment of L&T including Mindree,
the net revenue has increased 58% vis-à-vis Q1 FY20. However EBITDA margin
has fallen from 23.2% in Q1 FY20 to 20.7% in Q1 FY21
Annual sales were Rs 77,643 crore, an increase of 10.6% in rupees. Sales growth is
due to growth in all industries, predominantly in the high-tech sector. PAT for the
year was 6.309 million . For fiscal year 2020, sales in USD rose 8.7% to 1,089
million USD, while sales in INR rose 10.6% to 77,643 million.
Analyse revenue (in $) based on several parameters:
• Sales by industry: High-tech and Medium (high tech) grew 13%, followed by
Travel & Hospitality (TH) 11%.
• Revenue by region: USA. grew 11% while India grew 27%.
• Service offerings: infrastructure management and technical support increased by
16%, followed by Digital, which grew by 15%; Package Solutions decreased by
14%
• Combination sales: increased 8% on the website, increased 10% abroad
Other income (excluding exchange rate gains / losses)
The other income for the fiscal year ending March 31, 2020 increased from $ 626
million in the fiscal year to $ 756 million in 2019. The increase was due to an
increase in the fair value of investment in mutual funds of € 88 million and an
increase in interest income on financial assets at amortized cost of € 43 million. '
traced back.

Profitability and Margins

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 • The PAT margin decreased 2.6% and decreased as a percentage of sales from
10.7% to 8.1% in fiscal 2020.
• The EBITDA margin decreased from 15.2% in the 2019 financial year to 14% in
the 2020 financial year
• The effective tax rate was 23.9% in FY 20 compared to 23.6% in FY 19.
II. ABOUT THE INDUSTRY
Last year L&T acquired Mindtree. Mindtree is in an IT consulting and digital
solutions space. Mindtree will give synergy with L&T Infotech which also
provides digital solution and IT consulting across different sectors. Industrial
developments about the IT space is explained below –
There is a high scale disruption in the business environment of IT space today. It is
enabled by the new developments in Artificial intelligence, robotics, data analytics
and Internet of things. This industry is having a global level disruption where as a
result of these technological changes, there could be fundamentally significant
shifts in the business models and way of working.
With COVID 19, IT services demand has increased as all the enterprise had to shift
their staff in The Work from Home (WFH) mode. This involves proving high etch
solutions in the areas of cyber security, 24x7 monitoring mechanisms and
providing training to employees. 5G is expected to create opportunities in Over-
the-Top (OTT) and e commerce space in the next few years. The challenge had
been to make sure to provide such technological solutions ensuring privacy and
maintain the productivity of the employees.
On the other hand, due to COVID-19, some companies have reduced their
discretionary IT spends to save cost.
Indian IT industry contributes 7.7% of the GDP of the country. Indian IT BPM
sector has grown annually at the rate of 6.1%. In the financial year of 2020, IT and
ITES industry grew to $181 bn from $170 bn in the financial year of 2019. India is
becoming a hub of world class technological capabilities with 75% of global talent
in the digital space is present here. India is the world’s leading sourcing
destination. India accounts for 55% share of $200-250 billion global service
sourcing business in FY19. IT companies of India set up around 1000 global
delivery center across 80 countries in the world.

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The share of digital in the IT & BPM industry has increased from 20% last year to
around 26% this year. Digital segment is expected to contribute around 38% of the
revenue of industry by 2025. Estimation of digital economy is around $ 1 trillion
by 2025. Revenue for Indian IT industry is estimated around $ 44 bn with export
revenue of $ 147 bn.

The manufacturing Internet of Things has been used to connect machines, cranes,
welding machines and other devices in different manufacturing facilities for
remote monitoring and maintenance. The installation of multiple sensors and
intelligent gateways 185 in the machines and devices enables the company to call
up operational, production and condition-based data in real time without human
intervention. Some of these data points are location, movement, arc time, on and
off time, idle time, work done, number of hours worked, pressure, temperature and
consumable of filler metals, and many other variables depending on the type of IT
team.

Today's business environment is rapidly evolving with the advent of new

technologies and a global game of high risk for digital disruption is currently
playing. It's built on the latest wave of technology - advances in artificial
intelligence, data analytics, robotics, Internet of Things, and new software-enabled
industrial platforms that incorporate all of these technologies and more. In
addition, there are the connections between company networks and other networks
in order to conduct online business. Technological innovations that are quickly
introduced online have created the gateway between people, information, systems
and assets around the world.

The global information technology and business process management (IT-BPM)

market excluding hardware and engineering, research and development (ER&D)
grew 5.6% last year, totaling 1.5 trillion hardware and ER&D spending amounted
to $ 191 billion in fiscal 2020. IT BPM export revenue for the industry for FY
2019-20 is projected to hit $ 147 billion, up 8.1% year over year.

Nine areas of digital technology will prove to be the fastest growing and most
powerful, with the combined potential to generate a third of the $ 100 trillion. The
nine areas include three basic technologies: big data and analytics, cloud
computing and cybersecurity, and six advanced technologies: artificial intelligence,
Internet of Things, 3D printing, robotics, blockchain and immersive media. The
strong digital foundation that Indian technology has built over the past decade
underpins the remarkable agility and resilience in responding to the COVID-19
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crisis. Ensure business continuity for all global customers while prioritizing the
safety of professionals.

The following specific vertical trends can be observed:

a) Banking and financial services: The banking industry is rapidly adopting

advanced data analysis and AI-based strategies as segmentation of customer data
and improved support for decision-making are becoming key priorities. In this
sector, spending on digital technologies increased. COVID-19 has the potential to
change the way people do banking and forever marks a significant shift to the
digital and cloud. Most routine operations are expected to move to the cloud, as
cloud-native technologies can improve customer experience while lowering costs.
b) Insurance: Cost optimization and modernization of legacy systems are the main
drivers of growth, and many insurers are switching from a product-oriented to a
customer-oriented business model, which is why insurance companies are open to
partnerships with 'InsurTechs', which will help them to reduce costs, increase the
efficiency of business processes improve and provide a better customer
experience. 

c) Manufacturing: This sector includes the industrial, automotive and aerospace

industries. The automotive industry has seen an unprecedented change in business
models and technology, driven mainly by connected, autonomous, shared and
electric (CASE) mobility. These trends will continue to drive the development of
the industry in the future. The industrial manufacturing sector is witnessing the
importance of the digital twin in maintaining operations within the manufacturing
ecosystem and the emerging and growing role of collaborative robots, remote
working and "virtual change" in the manufacturing sector. Manufacturing. 

d) Energy and Utilities: Migration to the cloud has helped companies leverage
solutions for automated adaptive planning and scheduling of production, logistics
and service processes, which in turn improve operational efficiency by reducing
human intervention. 

e) CPG, Retail and Pharmaceuticals: Competition from direct consumer

companies is changing the business models for CPG players. Companies are
investing in customer-centric digital technologies such as virtual shelves, digital
kiosks, self-checkout, digital reality, etc. As pharmaceutical companies generate a
huge amount of health data, linking with new technologies to build digital
platforms is the way to transform their business. New technologies such as
mHealth, robotic surgery, and 3D printing are paving the way into the life science
industry. 

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f) High technology, media and entertainment: Direct-to-consumer is an
important issue arising from the need to understand customer preferences and
behavior. In the media and entertainment industries, content creation, prediction,
and personalization are keys to a seamless user experience. In Hi-Tech, 5G
technology is expected to drive the market for years to come and open up
opportunities for over-the-top (OTT) and e-commerce. Fiscal 2019-20 marks the
fourth consecutive year of LTI's industry-leading double-digit growth.

 
Investments / Developments
India's leading IT skills and strengths have attracted significant investments from
key countries. The computer software and hardware sector in India recorded FDI
inflows of $ 44.91 billion between April 2000 and March 2020. The sector took
second place in the ranking as per inflow of foreign direct investment according to
the Ministry for the Promotion of Industry and Domestic Trade (DPIIT).
India's leading IT companies are diversifying their offerings and using innovation
and R&D hubs to present customers with ideas for blockchain and artificial
intelligence to create differentiated offerings.
Some of the key developments in the Indian IT and BPM sector are as follows:

 In May 2020, SirionLabs, a Software-as-a-Service (SaaS) provider, raised

US $ 44 million as part of its Series C round under the direction of $ 44
million tiger growth and avatar growth capital
 Investments in PE (private equity) in this sector totaled 49.8 transactions in
2019, amounting to $ 11.8 billion.
 In January 2020, Japanese tech Nippon Telegraph and Telephone announced
plans to invest a significant portion of their global commitment on the data
center business in India over the next four years.
 In February 2020, Tata Consultancy Services received a contract worth
Rs.10,650 billion (US $ 1.5 billion) from pharmaceutical company
Walgreens Boots Alliance.
 Cognizant acquired the British technology consultancy Contino.
 In May 2019 Infosys acquired a 75 percent stake in Stater, the subsidiary of
ABN AMRO Bank, for $ 143.08 million, and in
 June 2019 L&T acquired Mindtree.
 Nasscom has launched an online platform aimed at improving the skills of
more than 2 million technology professionals and training an additional 2
million potential employees and students.
 By February 2020, there were 417 approved SEZs across the country, 274
for IT and BPM and 143 as exporting SEZs.
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Government
Initiatives Some of the key government initiatives to promote the IT and BPM
sector in India are as follows:

 In May 2019, the Ministry of Electronics and Information Technology

(MeitY) launched the MeitY Startup Hub (MSH).
 In February 2019, the government published the National Policy on
Software Products 2019 for the development of India as a software product
nation. The
 The government has identified information technology as one of the top 12
service sectors for an action plan to be developed. Additionally, the
government has set up a Rs 5,000 billion ($ 745.82 million) fund to help
unlock the potential of these champion service sectors.
 As part of the 2018-19 Union budget, NITI Aayog should set up a
nationwide program to facilitate the efforts of AI and the use of AI
technology to develop the country.
 In the preliminary budget for 2019-20, the government announced plans to
launch a national AI program and create a national AI portal.
 National Software Products Policy-2019 was approved by the Cabinet of the
Union to develop India as a software product nation.

 
Achievements
The following are the government's achievements in 2019-20:

 Approximately 200 Indian IT companies are represented in around 80

countries.
 Total industry export revenue is expected to grow 8.1 percent year over year
to $ 147 billion in FY20. The IT and BPM sector had the largest share in the
export of IT services. India with 45 percent.
 The total number of employees increased to 1.02 million cumulative as of
December 31, 2019 for four Indian IT departments (including TCS, Infosys,
Wipro, HCL Tech).
 The Indian IT industry employed 205,000 new employees and had 884,000
talents with digital skills in 2019.

According to ICRA, the outbreak of the coronavirus is likely to put Short-term

burden on the Indian IT service industry. The sector grew by 3 to 5% in FY21,
down from previous estimates of 6 to 8%. Margins are also likely to be adversely
affected, with a rebound in fiscal year 2022 likely. However, the credit outlook for
Indian IT companies remains stable as healthy free cash flows protect short-term
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disruptions and provide substantial liquidity. Although ICRA predicts a gradual
recovery in the second half of the year, estimates can be conservative given the
current uncertainty about how the pandemic will develop and the full extent of its
economic costs. On the supply side, India's IT services will face issues such as
travel restrictions in developed countries as well as office / work-from-home
closures in various offshore and onshore development centers. In the early stages
of a project, it is important to visit the client's site while the final part can be
managed remotely. The start of new projects is likely to be delayed by at least 3-6
months. Upcoming projects will also have a similar fate. When organizations try to
ensure the least impact on financial payouts and compliance costs and focus more
on results-based commitments, the flexi workforce has an advantage

III. RATIONALE OF RESTRUCTURING

In what is touted as the first hostile takeover of a company in the country, Indian
conglomerate Larson & Toubro has successfully completed its takeover of IT
company Mindtree. As per L&T, initially, Cafe Coffee Day founder VG
Siddhartha who was facing pressures of liquidity approached them offering to sell
his stake in the company in March 2019. Interestingly, Siddhartha was the single-
largest non-promotor shareholder having 20.32 per cent stake in Mindtree. L&T
offered him Rs 980 per share, which approximately amounted to Rs 3,269 crores.
This offer was vehemently opposed by the management of Mindtree which set
stage for a hostile acquisition. 
As the global market for SaaS and analytics grows around the world, players like
Mindtree and L&T Infotech are also gaining importance. The global economy is
growing rapidly and the demand for cloud-based analytics and real-time data
analytics is also creating new opportunities for this area. Due to growing growth
and competition in the e-commerce industry, as well as the service sector, there is a
shortage of analytics solution providers. Add to that a lack of trained staff and a
high attrition rate, L&T is eager to have Mindtree under its roof.
L&T is a diversified conglomerate whose business comes largely from the EPC
sector, which is highly cyclical and dependent on the economy. To offset this
cyclical business, L&T has expanded its service business, which consists primarily
of technology, real estate and financial services. Acquisitions have been looked for
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and L&T Infotech has also made a few acquisitions in the past, although none
comes close to the type and size of Mindtree. A contract with L&T would create a
$ 2.4 billion IT services company with multiple magnitudes namely BFSI, retail,
consumer goods and manufacturing, and technology media and services.
Analysts say the acquisition will help L&T add several large clients to its IT
services portfolio. “Over the next 1-2 years, the acquisition of Mindtree would add
significant scale, plug the gaps in LTI’s portfolio and add new large clients
(Hermes, The Carlyle Group and Microsoft) and enhance the digital capabilities
and presence in infrastructure management space and cloud within the L&T
group,” said a report by broking firm Sharekhan.

L&T had huge Rs 15 billion cash reserves and was looking to make acquisitions.
Some time ago, L&T had planned a share buyback that had stalled by regulators
for several reasons. The company then decided to use the cash reserves by
acquiring Mindtree. With the takeover of Mindtree, L & T sees synergies with L &
T Infotech, the listed group company in the IT sector.
The Indian conglomerate already has a listed IT company - L&T Infotech - which
focuses on BFSI vertical whereas, Mindtree largely focuses on clients
from hospitality and retail sector. So, a takeover would mean an expansion of
L&T's information technology business. L&T has an interest in the acquisition and
a balance sheet to support it. Mindtree would grow its business and improve
position in the industry. L&T Infotech, which is primarily engaged in
manufacturing, will gain a strong presence at BFSI through Mindtree and benefit
from a diversified customer base.
This acquisition is expected to expand the IT services business and increase the
shareholder value of L&T Infotech. A contract with L&T would create a $ 2.4
billion IT services company with four reasonably-sized industries: BFSI, retail,
consumer goods and manufacturing, and media and technology services. The
merged company also significantly reduces customer concentration, as no
customer represents more than 8.5% of sales. Microsoft alone contributes about a
quarter of Mindtree's accounts. In addition it will add value to L & T's broad
product line, and the L&T’s strong financial background will help bring Mindtree
more product, research and development opportunities.

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Facts: Mindtree with its focus on digital technologies has consistently focused on
digital technologies over the years. These digital services offered by Mindtree
make around 50% of their 2019 revenues.

Due to their focus towards digital capabilities like IOT, edge analytics, digital
technologies, DevOps, and digital agile capabilities Mindtree has gained traction
and improved consistently in acquiring deals over the past 3 years

Mind Tree’s share from digital orders has grown over the years

Mindtree with good digital competencies, increased participation in the deals

similar to above, improvement in advisory channel and focusing portfolio towards
high growth areas which will drive above-industry revenue growth for the
company.
Mindtree survived past few years and stayed way ahead of time due to its strategy
and maintained good growth compared to sector leaders Infosys and Wipro
L&T Infotech is predominant in the banking, manufacturing, oil and gas, and
insurance businesses, whereas Mindtree is into consumer-packaged goods, retail,
hospitality, travel and technology which makes Mindtree good acquisition target.

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Closer look at these two companies’ financials and their split across verticals
provides L&T to tap into different sectors and create more diverse business.

Comparing the combined sales of these two companies can put L&T in
competition with sector leaders whose turnover is close to 12000 crores.
So acquiring Mindtree L&T can tap into different sectors, increase size and get
access to Mindtree digital capabilities which puts them directly in competition with
the Leaders like TCS, Infosys and Wipro

Major concerns over the consolidation were:

1. Will cultural integration be difficult?
This is always a key concern in any acquisition but I am not so sure that the
culture at Mindtree is so very unique that, given the intent and effort on both
sides, this would prove insurmountable. L&T on its part has publicly
committed to keeping the company as a separate entity in the medium term.
Given management oversight, over time these things even out and there are
examples of very diverse cultures which have integrated very well right here
in Indian IT industry. Tech Mahindra and Satyam is one such example. The
argument that a services mindset will not work in a manufacturing enterprise
environment is, again, not relevant anymore as L&T has long crossed that
hump of the past with its two technology companies whose performance is
evidence of its success.
2. Will internal competition between the L&T entities and Mindtree be an
impediment, as is claimed by the Mindtree founders?

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 Highly unlikely if accounts are mapped based on their respective strengths.
Again, three entities of the Tatas—Tata Elxsi, Tata Technologies, and TCS
—play in the IT sector with hardly any overlap and conflict to materially
affect performance.
3. Customers and employees.
Minor disruptions notwithstanding, given adequate management supervision
this too can be managed. In fact, employees will have a larger canvas to play
and will have the benefit of stock option plans that would most certainly
appreciate faster if the growth imperatives play out.
Given all the claims by the Mindtree founders of the uniqueness of its
culture, the attrition levels at Larsen & Toubro Infotech Ltd. are lower than
Mindtree

IV. ALTERNATIVES EXPLORED FOR RESTRUCTURING

Acquisition options possible for the company:

1. Acquisition with consent
2. Hostile takeover

Acquisition with consent:

An acquisition is when one company purchases most or all of another company's
shares to gain control of that company. Purchasing more than 50% of a target
firm's stock and other assets allows the acquirer to make decisions about the newly
acquired assets without the approval of the company’s shareholders. Acquisitions,
which are very common in business, may occur with the target company's
approval, or in spite of its disapproval. With approval, there is often a no-shop
clause during the process. But in this case promoters were not in favor of the
normal acquisition due to their emotional attachment with the company.
Hostile takeover:
This is the first hostile takeover case happened in the country. A hostile takeover is
said to be one where a company acquires the target company by going to the target
company’s shareholders or by fighting to replace management to get the

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acquisition approved. And when the management of the target company doesn't
want the deal to take place, it is called a hostile takeover.
In a normal scenario, when a company tries to acquire another, it can offer to gain
control if it owns 25 per cent stake of the company it is trying to acquire. However,
L&T did not own 25 per cent ownership of the company. So, L&T used a loophole
in the Securities and Exchange Board of India's (SEBI’s) Takeover Code.
The Indian conglomerate used Section 3, Clause 1 along with Section 4 of the
securities regulator’s takeover code, which entitles L&T to make an open offer to
acquire public shareholding in the company.
As per this section, those with a 25 per cent stake or more cannot take over a
company unless an open offer has been made to acquire shares of a company with
a public announcement. However, the takeover code also says whether or not one
holds shares or voting rights in the company, one is not eligible to take control
unless a public announcement of an offer to acquire those shares is made. This
allows L&T to make an open offer, without owning 25 per cent shares in the IT
major.
After the deal L&T has 2 options
1. To merge with the existing business line (L&T Infotech)
2. Treat Mindtree as an Independent entity
Even though the deal creates synergies but to the due difference in client mix and
sector mix dealt by Mindtree and the significant difference between their cultures.
To maintain individual strengths of these companies the board have decided to
keep Mindtree as independent company but it will operate at arm’s length
For now, though, L&T plans to run Mindtree as a separate entity, we wonder if it
would remain so in the long term. Mindtree and LTI businesses are highly
complementary- Mindtree has a broad range of offerings, is strong in digital,
particularly in the experience layer and cloud services, and excels in handling the
discretionary spending of clients. LTI’s strengths are geared towards core
transformation, enterprise solutions and strength in multiple aspects of digital
including cloud, analytics, internet of things, cognitive and mobility.

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V. DEAL VALUATION

1. DCF Valuation
DCF VALUATION
in Rs
Crore
Years 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030
986.
PBT 8
Interest 2.9
Tax 0.25
742.
NOPAT 275

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Depreci 164.
ation 1
Change 431.
in NWC 8
Capex 169
305. 343.006 385.022 432.185 485.12 544.551 611.256 686.131 770.17 864.522 970.4 1089.29
FCFF 575 2845 6988 8966 6331 6822 3175 9097 9357 1619 2145 2828
Termin 20095.5
al Value 8453

Enterprise Value 10,543.99

Debt 17.90
Cash 256.20
Equity Value 10,782.29
Total Outstanding Shares 164,184,628.78
Share Price 656.72

2. MULTIPLE VALUATION

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 MULTIPLE VALUATION

EPS Price P/E EV/EBITDA

Mphasis 56 986.75 17.62 12.00
Hexaware 22 358.45 16.29 11.00
NIIT 5 89.35 17.87 20.00
Average 17.26 14.33

PE MULTIPLE
EPS 45.93
Price Per Share 1030.65133
EBITDA MULTIPLE
EBITDA 1153.8
EV 16537.8
Debt 17.90
Cash 256.20
Equity 16,776.10
Shares outstanding 164,184,628.78
Price Per Share 1328.317405

We performed a valuation of Mindtree for the price that should be paid to the
shareholders and major stakeholders of the firm. 
Using DCF, we arrived at a share price of 656 rupees which includes control and
liquidity as they are inherent in DCF valuation. 
Using relative methods of valuation, we used peer firms such as Hexaware, NIIT
and Mphasis to arrive at relative numbers. Using the P/E method, we arrived at
1030.
Using EV/EBITDA multiple, we arrived at a share price of 1328.

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VI. STRUCTURE OF THE DEAL
L&T was in talks to acquire Mindtree which was performing well with revenues
growing at more than 20% in the last few years. L&T also saw Mindtree as an
important addition to its existing business in IT by L&T Infotech.
The high percentage of revenue that Mindtree was generating from digital clients
became an important attraction for L&T as Mindtree was even defeating large
scale IT players in terms of digital revenue.

L&T approached founders and owners of Mindtree with the offer but it was not
even discussed as founders were not interested in selling the business. They saw
huge potential in Mindtree and its growth journey till now was making them
confident.

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As L&T did not want to let go of this opportunity to scale up their business in the
IT Industry which will help the group diversify itself, it found a way in regulations.
The regulations allowed a company to make a public offer to the shareholders for
acquiring the firm if it owned 25% stake before making the public offer.
The following parties/phases happened in this popular hostile takeover:

Late V.G. Siddhartha, CCD Owner (20% stake in Mindtree)

CCD was facing financial troubles and liquidity problems as the loans taken to
expand CCD reach into tier-2 cities and malls were getting due while the firm was
not able to generate enough cash flow. Thus L&T observed that he is one of the
largest shareholders in Mindtree and is in need of paying off debt. L&T knew that
liquidity concerns will make Late Mr. Siddhartha liquidated his stake in Mindtree
and L&T will have more than 20% stake in the firm.

The strategy worked and L&T acquired a 20% stake in Mindtree for 3269 crores
valuing each share at 980. This helped L&T proceed towards the public offer and it
was the most critical step in the hostile takeover. The debt and liquidity troubles at
CCD made Late Mr. Siddhartha give away a considerable stake at close to market
price without charging a considerable premium and exposed Mindtree to the
possibility of a hostile takeover.
15% Stake Acquisition Offer
By now, Mindtree had realized that L&T is going for a hostile takeover and they
tried to repurchase shares and provide dividends but the cash pool of L&T was
unmatchable by Mindtree.

In order to acquire a minimum required 25% before making a public offer, L&T
approached institutional shareholders in Mindtree. It was able to acquire 9% stake
which took its overall stake to 29% in Mindtree. Now it only needed to make a
public offer to gain control of the firm.

Public offer for 31% Stake

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As it had also become evident to shareholders that Mindtree owners and founders
will not be able to maintain control of the firm and L&T will complete the takeover
so shareholders oversubscribed the public offer. The public offer for 50.9 million
shares was subscribed 1.2 times. It provided L&T control over Mindtree with 60%
stake.

The first thing that L&T did after successfully acquiring the firm was to change the
management and inducted its top-notch people at senior leadership positions in
Mindtree.
As Mindtree has high client concentration, that is the majority of their revenue
comes from Top 10 clients. The new team started reaching out to clients about the
new possibilities and ensuring client stickiness as they are big value providers.

VII. REFERENCES
 https://economictimes.indiatimes.com/tech/ites/lt-confident-of-taking-control-of-mindtree-am-
naik/articleshow/69764776.cms#:~:text=In%20March%2C%20L%26T%20signed%20an,to%20shore%20up
%20its%20holding.
 https://economictimes.indiatimes.com/markets/stocks/news/lt-acquires-8-86-lakh-shares-of-
mindtree/articleshow/69362228.cms
 https://www.livemint.com/companies/news/l-t-acquires-97-815-shares-of-mindtree-
1559132573012.html
 https://economictimes.indiatimes.com/markets/stocks/news/lt-hikes-stake-in-mindtree-to-28-45-buys-
24-9-lakh-shares/articleshow/69485982.cms?from=mdr
 https://mnacritique.mergersindia.com/l-and-t-hostile-takeover-mindtree/
 https://www.timesnownews.com/business-economy/companies/article/larsen-toubros-hostile-takeover-
of-mindtree-explained/451060

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  https://economictimes.indiatimes.com/tech/ites/how-mindtree-became-the-object-of-a-hostile-
takeover-battle-between-its-management-and-lt/articleshow/68490409.cms
 http://pages.stern.nyu.edu/~adamodar/New_Home_Page/datafile/ctryprem.html
 http://people.stern.nyu.edu/adamodar/podcasts/valspr19/session4slides.pdf
 http://pages.stern.nyu.edu/~adamodar/New_Home_Page/valquestions/syntrating.htm
 https://www.mindtree.com/sites/default/files/2019-04/credit-rating.pdf
 https://www.ccilindia.com/Research/CCILPublications/Lists/CCILPubRakshitra/Attachments/321/Rakshitr
a%20July.pdf

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 THANK YOU

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