Finnish telecom software firm Tecnomen has acquired Delhi-based Lifetree Convergence Pvt Ltd, an IT and billing solutions provider to telecom companies. The Helsinki Stock Exchange listed firm has agreed to acquire up to 96.6% stake in Lifetree for $46 million. The deal involves cash payment of around $29.5 million, which will mostly be to the founder investors, and the rest will be through issue of new Tecnomen shares. The new entity will be called Tecnomen Lifetree.

The acquisition comes as a surprise as Lifetree just got a commitment of $20 million investment from International Finance Corp (IFC), the private equity arm of the World Bank. Till now, $5 million of the committed amount has been invested, Lifetree CEO and Managing Director Atul Chopra told VCCircle in an interview.

IFC will get a 5.65% stake on a fully diluted basis in Tecnomen Lifetree after the acquisition and will be the largest block shareholder in the company. The management of Lifetree will be getting around a 3% stake in Tecnomen Lifetree.

"They (IFC) retain the option to invest the remaining amount in the company," said Chopra, who will now be the Group President and COO of the combined entity. The funds from IFC were raised by Lifetree for potential acquisitions and it was evaluating various targets. Initially, Lifetree was exploring a buyout of Tecnomen with a private equity fund, but financing became difficult after financial meltdown started, said Chopra. After that the two companies sat down and sewed up the present deal.

Lifetree was founded in 2000, and its revenues have risen on an average by 40% with margins in late 30s. For financial year 2008, the company reported net sales of $15.6 million with profit after tax of $4.7 million.

Strategic Fit

The two firms have very limited overlap in the customer base and Tecnomen could market all of Lifetree's products through its global sales network. The products of the two companies are also a good match and will expand the product offering of Tecnomen. Analysts tracking Tecnomen in Norway have given the deal a thumbs up. "The acquisition should boost Tecnomen's EPS growth despite the new shares issued as part of the transaction," said a report by Nordea, one of Norway's largest banks.

The combined entity's clientele will comprise more than 120 customers, spread across 70 countries. Lifetree has a strong presence in Africa with clients like MTN (which accounts for 40% of Lifetree's sales), Celtel, etc and also has a presence in Philippines, New Zealand and Middle East. Tecnomen has a strong presence in Latin America with America Movil being its anchor customer in the region.

The deal will help the companies expand the presence across the value chain. Lifetree has a presence mainly application side, and will get an access to networking side of the service also. Chopra also sees tremendous opportunities in cross selling. "A lot of their customers are looking for convergence, which is an increasing trend, would move into this new platform being jointly developed by both of us," said Chopra.

Integration and Expansion

Chopra will now be looking for successful integration of the two firms. Lifetree, which has about 400 employees, will also be increasing the workforce in India. Half of Tecnomen workforce of 350 people will come to India, mainly to Bangalore.

It will also be looking at acquisitions in revenue assurance space. "Once the integration is done, we will be on the prowl for something in revenue assurance space," said Chopra. There are several companies in revenue assurance space in India like Subex Azure, Connectiva etc. 

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