Tech Mahindra - Lightbridge Acquisition: Enhances Network Skill-Set:: Edelweiss

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Tech Mahindra (TECHM) announced the acquisition of Lightbridge Communications Corporation (LCC), a US-based firm providing network engineering services, for an enterprise value (EV) of USD240mn EV/EBITDA of ~7.0x). This will sharpen TECHM’s domain expertise in network engineering. The company expects to complete the acquisition by Q4FY15. LCC is expected to post revenue of USD430mn in CY14 (CAGR of 24% over CY08-14E) with EBITDA margin of 8%.  The acquisition will aid TECHM inch closer to its vision of exiting FY16 with a revenue runrate of USD5bn. Our 20% revenue growth assumption for LCC in FY16 with 8% EBITDA margin leads to 1% upward revision in our FY16E EPS estimate for TECHM.

Deal contours and other highlights

Acquired 100% stake for EV of USD240mn (EV is net of debt) and valuation of EV/EBITDA of ~7x. Acquisition will be funded mostly through internal funds. 30 new clients will be added across North Asia, Israel and Latin America.

LCC- Global footprint with network engineering capabilities

LCC is one of the largest independent global providers of network engineering services. The company is expected to post revenue of USD430mn in CY14 (USD330mn in CY13, CAGR of 24% over CY08-14E) with EBITDA margin of 8%. It has an employee base of 5,700 plus across 55 countries. LCC has net debt of USD85mn; acquisition is net of debt. The company is profitable and TECHM expects it to be EPS accretive in CY15.

LINK

https://www.edelweiss.in/research/EdelFlash-Tech-Mahindra--Lightbridge-Acquisition-Enhances-Network-Skill-Set/27664.html