Satyam Computer in Talks to Acquire Company in Europe

Satyam Computer Services Ltd. (SCS), which is being bought out by Tech Mahindra Ltd. (TECHM), is in talks to acquire a company in Europe to strengthen the services it provides the aerospace industry.

The company is in an advanced stage of discussions for a “major” purchase in aerospace, Lakshmanan Chidambaram, head of North America at Satyam, said in a phone interview from Boston yesterday. Satyam, 43 percent owned by Tech Mahindra, is scouting for acquisitions and will spend as much as $150 million, he said.

Tech Mahindra Vice Chairman Vineet Nayyar said last week the buyout of Satyam will propel them into the “big boys” category, with 18 billion rupees ($353 million) of cash. Buying a service provider to the aerospace industry will help cut dependence on telecommunications customers, who will be the biggest revenue contributor at the merged entity, according to Ankita Somani, an analyst at Angel Broking Ltd. in Mumbai.

“They are trying to scale up their businesses in growing verticals like manufacturing,” said Somani. “They want to scale up their services so they can chase contracts which the large cap information technology companies are chasing.”

Larger rivals Tata Consultancy Services Ltd. (TCS) and Infosys Ltd. are leading the hunt by Indian software companies as they turn to acquisitions to expand into Europe, currently the largest source of their revenue after the U.S.

‘Next Level’

Companies in the telecommunications industry will contribute 47 percent of revenue at the combined company after Tech Mahindra and Satyam are merged, Chief Financial Officer Sonjoy Anand said on March 21.

“We would make strategic acquisitions that help us get to the next level, even in areas where we’re fairly established like aerospace,” Chidambaram said. “There could be gaps -- either you organically improve it or you buy it out.”

Satyam, based in Hyderabad, will consider buying companies that specialize in services for industries such as retail, travel, logistics and consumer products, he said.

Shares of Satyam rose 0.1 percent to 77.15 rupees as of 2:59 p.m. in Mumbai trading. They have gained 18 percent this year. Tech Mahindra rose 0.2 percent to 703 rupees and has advanced 23 percent this year.

Tech Mahindra last week said it will buy Satyam in a stock deal that values the target at 89.9 billion rupees. The agreement ends a three-year process that began with the government firing Satyam’s board after its founder chairman revealed a 100 billion-rupee accounting fraud.

Worldwide spending on information technology services will grow at a slower 3.1 percent pace this year, after climbing 6.9 percent in 2011, to an estimated $874 billion, researcher Gartner Inc. said in January.

Satyam and Tech Mahindra are negotiating for 30 contracts in the Americas, with the orders ranging from $25 million to $200 million, Chidambaram said.

To contact the reporter on this story: Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net

To contact the editor responsible for this story: Michael Tighe at mtighe4@bloomberg.net

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