IT firm Zensar Technologies is in talks to acquire an 18–20% stake from promoters of mid-sized peer Mastek, three people familiar with the matter told Mint.
The proposed transaction is expected to be valued at over $200 million and could go up to $400 million, though discussions are ongoing and no deal has been finalized, the people added.
The promoter stake sale in Mastek, which has been in the works for some time, is contingent on both sides agreeing on the company’s enterprise valuation, one of the people quoted above said.
“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 added.
Mastek currently has a market capitalization of ₹6,429 crore.
Founder Ashank Desai is the company’s single-largest individual shareholder, holding about 10.95% of the shares, while chief executive Umang Nahata owns around 5.48%.
If the stake sale goes through, it could lay the groundwork for a potential merger, which would create a new entrant in Indian IT’s $1 billion revenue club. Zensar and Mastek ended last year with revenues of $624 million and $408 million, respectively.
To be sure, IT sector valuations peaked in 2021-22 amid pandemic-led digital transformation and easy global liquidity, prompting companies such as Wipro to pay premium prices for assets such as UK-based Capco. Public market multiples also expanded sharply as investors chased growth.
Since then, valuations have corrected as interest rates rose, deal-driven demand normalized, and clients cut discretionary technology spending, pushing the sector closer to historical averages.
The people quoted above also told Mint that potential buyers such as private equity firm ChrysCapital and Pune-based IT services firm 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 person added.
Consulting firm EY is advising Zensar on the deal, the people quoted above said.
Emails sent to Zensar Technologies, Mastek, Persistent Systems, EY and ChrysCapital went unanswered until press time.
“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,” said Peter Bendor-Samuel, founder of Everest Group.
“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,” he said.
What the deal could mean
If Pune-based Zensar were to buy a stake in Mastek, the promoter shareholding would fall to about 18–20%, down nearly half from current levels. At present, promoters and promoter group entities own 35.77% of Mastek, according to BSE data.
“Zensar is an efficient player and its margins are strong. If this deal goes through, it will add scale and also help them add new capabilities,” the first person quoted above said.
The proposed sale comes at a time when Mastek has been losing share to larger peers. It recently missed out on a $1.6 billion IT modernisation contract from the UK’s public healthcare provider, the National Health Service, which was awarded to Infosys Ltd.
Mastek derives 57% of its full-year revenue from the UK, where it handles large government and civic contracts, primarily in the government and healthcare verticals. The company has also been grappling with senior management churn. Raghavendra Jha resigned as chief financial officer in June last year, less than a month into the role, citing personal reasons.
Zensar, meanwhile, has been dealing with its own challenges.
Zensar Technologies is expected to see lower business from Cisco Systems, one of its top five clients, as the US technology major reduces the number of IT vendors it works with. The company has also struggled to expand its business with telecom, media, and technology clients, which together account for about a fifth of its revenue.
Its path to the $1 billion revenue milestone has been under scrutiny after it reported full-year revenue declines in two of the last five years, raising concerns among analysts about its growth trajectory.
“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,” Bank of Baroda Capital Markets analysts Girish Pai and Lopa Notaria said in a note dated 24 January.
Access to the UK market is expected to support growth amid an uncertain demand environment. Each of Tata Consultancy Services’ last five mega deals has come from the UK, while Infosys’ latest mega deal was also from the region.
“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,” Phil Fersht, chief executive of HFS Research, said.
