Views of Ms. Sarabjit Kour Nangra (VP Research- IT, Angel Broking):
"Tech Mahindra Ltd has signed a definitive agreement to acquire CJS Solutions Group LLC, a US-based healthcare information technology consulting company that does business as The HCI Group. The deal values CJS Solutions at an enterprise value of US$110mn. Tech Mahindra will make an upfront payment of US$89.5mn for purchase of an 84.7% stake in the firm. The balance stake of 15.3% will be acquired over a period of three years. The HCI Group works with global tier-I healthcare service providers, primarily in the US and UK. It focuses on providing end-to-end implementation of electronic health record (EHR) and electronic medical record (EMR) software, training and support services. The company also has a presence in Europe, West Asia and Asia-Pacific, and employs more than 500 professionals globally.
In the 12-month period to September 2016, The HCI Group had revenues of US$114mn. The transaction is expected to close by April, subject to regulatory approvals. Lodestone Corporate Advisors is the exclusive adviser to Tech Mahindra on the transaction. The margins of CJS are in high single digit, thus will be margin accretive for the company. The CJS transaction is expected to close by April 2017. The acquisition will be mostly funded through internal accruals.
While the acquisition is small one, it will enable the company in diversify its revenue stream. On valuations it's difficult to comment as the ROE of the acquired firm is not known, though it will not add anything substantial on the net profit front, given the low margins of the acquired business and hence we maintain our BUY rating with a price target of INR 600."
Shares of TECH MAHINDRA LTD. was last trading in BSE at Rs.475.65 as compared to the previous close of Rs. 489.05. The total number of shares traded during the day was 218224 in over 2709 trades.
The stock hit an intraday high of Rs. 497 and intraday low of 474.4. The net turnover during the day was Rs. 104486472.