Zensar Technologies in Advanced Talks to Acquire Significant Stake in Mastek
In a significant development within India's information technology sector, Zensar Technologies is currently engaged in discussions to acquire an 18–20% stake from the promoters of mid-sized IT services firm Mastek. According to three individuals with direct knowledge of the matter who spoke to Mint, these negotiations are ongoing and no final agreement has been reached yet.
Deal Valuation and Financial Implications
The proposed transaction is expected to be valued at over $200 million, with potential to escalate to $400 million depending on the final terms. One of the sources indicated that the promoter stake sale in Mastek has been under consideration for some time, with the primary hurdle being agreement on the company's enterprise valuation.
"The promoters have been wanting to sell for a while now, but, as per their current expectations, the deal could value the company at almost double its current market capitalisation," the person revealed. Mastek currently commands a market capitalization of ₹6,429 crore.
Shareholding Structure and Potential Outcomes
Founder Ashank Desai stands as Mastek's single-largest individual shareholder with approximately 10.95% of shares, while Chief Executive Umang Nahata holds around 5.48%. If the stake sale materializes, it could significantly reduce promoter shareholding from the current 35.77% to about 18–20%, according to BSE data.
More importantly, this transaction could establish the foundation for a potential merger between the two companies. Such a combination would create a new contender in Indian IT's elite $1 billion revenue club. For context, Zensar and Mastek reported revenues of $624 million and $408 million respectively at the end of the last fiscal year.
Industry Context and Previous Interest
The proposed deal emerges against a backdrop of shifting IT sector valuations. After peaking during 2021–22 amid pandemic-driven digital transformation and abundant global liquidity, valuations have corrected as:
- Interest rates have risen globally
- Deal-driven demand has normalized
- Clients have reduced discretionary technology spending
Previous potential buyers including private equity firm ChrysCapital and Pune-based IT services company Persistent Systems Ltd had evaluated the deal earlier. "Persistent even reached the exclusivity stage, but all these deals fell through due to the company's high valuation expectations," the first source added.
Strategic Rationale and Market Position
"I think it is as simple as Zensar is looking to participate in the industry consolidation and feels it needs to add scale quickly. Mastek comes at an attractive price and has a complimentary set of logos," observed Peter Bendor-Samuel, founder of Everest Group.
He further elaborated: "It is likely that Zensar believes it can use the Mastek beachhead in these clients to cross-sell additional services. Mastek does not seem to offer many new capabilities but footholds in new firms and new industries."
Challenges and Opportunities for Both Companies
Mastek has been facing several challenges recently:
- The company lost a substantial $1.6 billion IT modernization contract from the UK's National Health Service to Infosys Ltd
- It derives 57% of its revenue from the UK market, primarily from government and healthcare contracts
- Senior management churn has been an issue, with Raghavendra Jha resigning as CFO in June last year after less than a month in the role
Meanwhile, Zensar has its own challenges to address:
- Expected reduction in business from top client Cisco Systems as the US tech giant consolidates vendors
- Struggles to expand business with telecom, media, and technology clients (about 20% of revenue)
- Scrutiny over its path to $1 billion revenue after reporting full-year declines in two of the last five years
Expert Analysis and Future Prospects
Bank of Baroda Capital Markets analysts Girish Pai and Lopa Notaria noted in a January research note: "When the current CEO stepped in, he aspired ZENT to move up one quadrant a year at a time from a revenue growth standpoint to the leaders quadrant in year four (FY27). FY24 being the first year, it was at the bottom-most quadrant on revenue growth but focused on getting margins to peer-matching levels. That happened rather quickly in FY24."
Phil Fersht, CEO of HFS Research, highlighted the strategic synergy: "Mastek's UK presence, combined with Zensar's digital and engineering capabilities, could create a more complete proposition for European enterprises that are consolidating vendors and raising governance expectations."
The UK market represents a significant growth opportunity, with Tata Consultancy Services securing its last five mega deals from the region and Infosys' latest major contract also originating there. Consulting firm EY is reportedly advising Zensar on the potential transaction, though all involved companies remained unavailable for comment at press time.
