Merger of LTI and Mindtree: Benefits, Challenges, and Recommendations

Two of the Larsen and Toubro (L&T) Group companies, L&T Infotech (LTI) and Mindtree, recently announced a merger to create what could be the sixth-largest Indian IT services provider in terms of overall sales, with a combined annual revenue of more than USD 3.5 billion as of March 31, 2022. The merged entity will be known as LTIMindtree Limited. The merger is subject to regulatory approval but is expected to go through. For now, these two entities will operate independently, and the transition is expected to be completed in the next 9–12 months. Both LTI and Mindtree are independent L&T Group companies and following the merger, the promoter, Larsen & Toubro Limited, will own 68.73% of the combined entity.

The merger was a long time coming, as shown in the bullets below.

• • June 2019 – L&T became the majority stakeholder of Mindtree by acquiring a 60.06% stake.
  • July 2021 – Mindtree acquired the NxT Digital Business of L&T to enhance its capabilities in cloud-based Internet of Things and artificial intelligence with a focus on Industry 4.0, augmented reality/virtual reality, geospatial systems, and cybersecurity.
  • May 2022 – LTI and Mindtree announced a merger, creating a larger Indian IT services provider.

The merger would lead to a lower risk for the two independent and listed IT companies as they will now be a part of the same parent company, Larsen and Toubro (L&T), an Indian conglomerate, and this will offer better diversification and expansion opportunities.

The merged entity should realize three primary benefits.

• • Enhanced scale of services and horizontal capabilities of a diversified services portfolio
  • Serving a diversified client base across end-to-end industry value chains
  • Expanded partner ecosystem resulting in stronger domain expertise

However, this merger of two of the most prominent names in the Indian IT services industry is coming at a time when the global tech industry is still navigating the challenges posed by the pandemic. Enterprises are rapidly turning toward digital business models, embracing distributed/hybrid working, and accelerating their digital transformation programs. They are witnessing shorter implementation cycles of digital projects, consolidating their vendor portfolios, and calibrating their cost structures. In order to meet these demands, service providers are adapting their service offerings and delivery models. However, multiple challenges remain around resource availability and lack of specialized skills.

With the merged entity coming into existence, prospective and existing clients of LTIMindtree should realize the benefits of enhanced delivery capability, innovation prowess, and strengthened domain expertise. They will be able to leverage the integrated and bespoke solutions of LTIMindtree to renew their provider relationships and drive their transformation objectives.

By Shwetank Saini, Research Leader, Avasant and Abhishek Nayak, Senior Analyst, Avasant.