It is the largest Mobile VAS acquisition in India of the 2008-09 fiscal, and now Tecnomen has received an approval from India’s Foreign Investment Promotion Board to invest Rs. 133.79 crores (approximately $26.2 million at current rates) for “acquisition of equity shares by way of share swap and cash arrangement”. This approval is likely to be for the $44 Million acquisition of 96.6% in Lifetree Convergence.
The deal was announced in December. Lifetree Convergence used to power Indiatimes 58888 service, before Buongiorno took over that mandate, and it provides telecom billing, customer care, rating, and messaging platforms. As of October 31st 2008, Lifetree had zero debt, net assets of EUR 8.4 million, cash of EUR 9.5 milion – and an enterprise value of EUR 24.9 million.
Approval Later Than Expected; Economic Affairs or Telecom?
The approval has come two months later than Tecnomen had expected: the transaction was supposed to have been completed by the quarter that ends tomorrow, so it appears that the closure of the deal has also been delayed.
We found it interesting that this approval by the FIPB is under the “Economic Affairs” head, and not Telecom. Telecom has a foreign investment limit of 74%, but it appears that mobile VAS does not, which means that Tecnomen can pick up as much as 96.6%.
Transaction Details: Mostly Cash
The total consideration for Lifetree’s shares is EUR 33.2 million (around Rs. 223 crores at current prices), which will be paid through a combination of cash and issuance of new Tecnomen shares. Of this, EUR 21.4 million (around Rs. 144 crores) will be paid in cash, and the remaining EUR 11.8 million (Rs. 79.5 crores) will be in Tecnomen shares.
The management of Lifetree convergence has a lock-in period of three years; the new options scheme won’t be for more than 8.5% of Tecnomens fully diluted shares. After closing, International Financne Corporation (IFC), as a current Lifetree shareholder, will become a shareholder in Tecnomen holding about 6.17% shares and 5.65% on a fully diluted basis.
Lifetree will become a subsidiary of Tecnomen, and the combined company will be called Tecnomen Lifetree Tecnomen has taken a five year loan to finance the acquisition of Lifetree. The transaction doubles Tecnomens workforse, and adds a fourth to their net sales. Lifetree’s cost of operations is around 1/5th of that of Tecnomen.