Zensar Technologies Plans to Buy Promoter Stake in Mastek

Talks are underway between the promoters of mid-sized competitor Mastek and IT giant Zensar Technologies to purchase an 18% to 20% share. Although negotiations have not yet concluded, the value of the potential acquisition is believed to be more than $200 million and may perhaps reach $400 million.

The long-planned sale of Mastek's promoter holding is still on hold until the parties involved reach a consensus on the enterprise value of the company. The promoters have long desired to sell, but their present projections place the deal's value at nearly twice the company's current market valuation.

Zensar Expanding its IT Portfolio

Zensar, a company based in Pune, will reduce the promoters' investment in Mastek from its existing levels of roughly 50% to 18% to 20%. According to BSE records, 35.77% of Mastek is currently owned by promoters and organisations associated with promoter groups. With its large margins and efficient player, Zensar is a formidable opponent. This acquisition, if finalised, will allow them to expand their operations and acquire new capabilities.

The planned sale occurs as Mastek is seeing its market share eroded by competitors with larger operations. Infosys Ltd was recently awarded a $1.6 billion IT modernisation contract by the National Health Service, the UK's public healthcare provider, and it was recently passed over by that company. Large government and civic contracts, mostly in the healthcare and government sectors, account for 57% of Mastek's annual income in the UK. Losses in senior leadership have also been an issue for the organisation. Citing personal reasons, Raghavendra Jha resigned as chief financial officer in June of last year, less than one month into the position.

Ongoing Challenges of Zensar

One of Zensar Technologies' top five clients, Cisco Systems, is cutting back on the number of IT vendors it works with, which means less revenue for Zensar Technologies overall. About 20% of the company's income comes from clients in the telecom, media, and technology industries, all of which the firm has had trouble growing with.

Analysts are worried about its growth trajectory as it has recorded full-year sales declines in two of the last five years. Hence, putting its path to the $1 billion revenue milestone under examination. Growth is anticipated to be supported by access to the UK market, even in an uncertain demand climate. Infosys' most recent huge deal was likewise from the region, while each of Tata Consultancy Services' last five major transactions has also come from the UK.