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Tecnomen Acquires 96.6% In Mobile VAS Co Liftree Convergence For $44M

Tecnomen Lifetree Revenues

Tecnomen Lifetree
In one of the largest deals in the Mobile VAS space in India this year, Mobile VAS company Lifetree Convergence has been acquired by Tecnomen, a Finnish supplier of messaging and charging solutions for telecom operators, for EUR 33.2 million (around $44 Million). Tecnomen CEO Jarmo Niemi will be the CEO of the combined entity Tecnomen Lifetree, while Atul Chopra, MD and CEO of Lifetree will be its COO and President. Lifetree is headquartered in New Delhi,and has software development centers in New Delhi and Bangalore. The company has around 400 employees.

They provide operational support systems and business support systems software, as well as content management and delivery platforms. Before Buongiorno took over from them,  Lifetree used to power Indiatimes’ 8888 service. African telcom operator MTN is among their biggest clients.

The Deal

We’re told that Lifetree was looking to raise funds, and ended up being acquired. Tecomen will take 96.6% stake in Lifetree Convergence for EUR 21.4 Million in Cash and EUR 11.8 Million in Tecnomen shares. The payout is being financed, in part, with a long term loan, and own funds. The Tecnomen shares will be issued to the management of Lifetree, subject to a 3 year lock-in period. The International Finance Corporation, a Lifetree shareholder, will become a shareholder in Tecnomen holding about 6.17% shares and 5.65% on a fully diluted basis.

Lifetree Financials (at Rs. 63 to the Euro)
— For the financial year ending March 31st 2008: Lifetree reported net sales of EUR 11.3 million, profit after taxes of EUR 3.4 million.
— For Jan-Sep 2008: Revenues of EUR 11.9 million, Operating profit of EUR 4.4 million, and an operating margin of 37.4%
— As of 31st Oct 2008: Lifetree reported no debt, net assets of EUR 8.4 million and a cash balance of EUR 9.5 million, and had an enterprise valuation of EUR 37.4%.

Combined Revenue:

Tecnomen Lifetree Revenues

Benefits:
— Higher Operating Margins: Lifetree has a higher operating margin than Technovate – 37.4% as compared to 11.7%, so the operating profit is comparable (EUR 6.5 Million vs EUR 4.4 Million) even though Tecnomen has around 4.66 times the revenues.
— Customer Base: Tecnoven has operations in more countries (59 vs 16) and has more customers (over 100 vs 18), but while Tecnomens major accounts are in South America and Europe, Lifetree has accounts mainly in Middle East and Africa.
— Lower Costs: Over 50% of the employees will be leveraged for reducing development and delivery costs. 47% of the combined entity’s employee base will be in Bangalore
— Larger portfolio of services: take a look at the chart below. More in the presentation here.

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Thoughts on the deal: It’s quite surprising to see Lifetree Convergence sell, given their profitability and the scale of operations. The platform services and white labeled solutions part of the Mobile VAS services business has a higher barrier to entry, longer sales cycle and consequently fewer players than the direct to consumer space. Perhaps it was a question of scaling…what’s your take?

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