In today’s Finshots, we take you through the merger deal between Happiest Minds Technologies and ITC Infotech India.

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The Story

Happiest Minds Technologies has just signed a merger deal with ITC Infotech India.

But the markets don’t seem too happy about it. Happiest Minds’ stock fell about 11% yesterday after the news came in.

So, what’s going on?

Before we get into the deal, let’s first understand both companies. Then, we’ll get to the nitty-gritty.

See, Happiest Minds is an IT services company. So other businesses like banks, hospitals, retailers and tech companies hire it to build or improve their software and digital systems. You could think of it as an outsourced tech team that large enterprises rent instead of hiring someone specifically for these ad hoc IT needs.

And its business can be broken into three parts.

First, there’s Product and Digital Engineering Services (PDES). This is by far its biggest business, contributing about 77% of its revenue (of ₹2,315 crore, in FY26).

Here, Happiest Minds helps companies design, build and test software products. Everything from mobile apps and websites to larger digital platforms. For example, if a hospital chain wants to build a new patient app or a retailer wants to revamp its e-commerce platform, this is the kind of work Happiest Minds would do.

Then there’s Infrastructure Management and Security Services (IMSS), which contributes about 16% of revenue. This is essentially the “keep the lights on” business, where it manages clients’ cloud systems and servers, while also helping protect them from cybersecurity threats.

And finally, there’s Generative AI Business Services (GBS), its newest segment. This is where Happiest Minds helps companies use AI to automate business processes, build predictive tools and, more recently, develop “agentic AI” solutions. It’s the fastest-growing of the three, although it is still the smallest, contributing about 3% of revenue.

Also, if you’re wondering why these three segments don’t add up to 100%, that’s because the remaining revenue comes from other sources.

But what really makes Happiest Minds interesting is where it operates and the kind of work it does. Its key clients are in sectors such as Banking and Financial Services (BFSI), Healthcare, Hi-Tech (a sector that focuses on cutting edge technology based products) and EdTech. Hi-Tech and EdTech, in particular, have been areas where Happiest Minds has built a strong presence.

Besides, over 90% of Happiest Minds’ business has consistently come from digital services. In simple terms, it does far less of the old-fashioned IT work, such as maintenance, and much more of the newer digital work that companies are increasingly spending on.

But now, Happiest Minds wants to become an even bigger AI-oriented company. And that’s where ITC Infotech comes in.

Under the proposed arrangement, ITC Infotech will first buy 22.1% of Happiest Minds from promoter Ashok Soota and his entities for ₹1,330 crore in cash. The remaining shares will then be exchanged for ITC Infotech shares. For every 81 Happiest Minds shares, investors will get 25 ITC Infotech shares.

And once the merger is complete, ITC Infotech will own 73.4% of the combined company, while Happiest Minds’ promoters will own 7.6%.

That values Happiest Minds at around ₹6,167 crore, or about 15 times its EV-to-EBITDA (Enterprise Value to EBITDA) — basically, a measure of how much investors are paying for the company compared to its operating profits.

And that’s probably where some investors got upset. Because at this valuation, there’s barely any premium being offered for Happiest Minds.

But here’s the thing. If you look at it more closely, Happiest Minds is actually getting the richer valuation of the two companies as ITC Infotech itself is being valued at a little over 13 times EV-to-EBITDA. So, what investors may see as a disappointing deal price could actually be a reasonably fair valuation.

But then, the valuation isn’t the only thing investors seem to be concerned about.

They’re also probably worried that the deal won’t fully close until around mid-FY28, when the combined company is expected to list. That means they could be left with 12–18 months of uncertainty over regulatory approvals, the integration process and, importantly, who will lead the combined company, since there’s no clarity on that yet.

The other worry is that Happiest Minds is merging with an unlisted company. So, for however long the transition lasts, investors are effectively giving up the liquidity and transparency that comes with owning a listed stock.

But what’s uncertain for Happiest Minds’ investors could actually be an advantage for ITC Infotech.

For starters, the deal gives ITC Infotech a much faster route to the public markets. To put that in perspective, ITC already has two major listed companies — ITC Ltd. and ITC Hotels. And this merger will create a third independently listed company without the hassle of first spinning out ITC Infotech and then taking it public. It’s basically a shortcut to an IPO.

It also fills gaps in ITC Infotech’s client base as it is traditionally strong in BFSI, Manufacturing, Consumer Goods, and Travel and Hospitality. But it has had a smaller presence in Healthcare, Hi-Tech and EdTech — precisely the areas where Happiest Minds is strong. So the merger helps ITC Infotech expand into these sectors without having to build that expertise from scratch.

It also gives ITC a stronger presence in the US and Americas. Around 27% of ITC Infotech’s revenue currently comes from these markets, compared with nearly 60% for Happiest Minds. So, through the merger, ITC gets a relatively mature US client base and sales network. Something that can take years to build organically, especially when global IT spending is becoming more cautious and increasingly focused on AI.

And not to forget, this deal could make the combined entity roughly the 11th-largest IT services company in India by revenue. On its own, Happiest Minds is a mid-sized player. But large global enterprises often prefer vendors with a certain scale. So, the merger could allow ITC Infotech to chase larger deals that neither company might have been able to win on its own.

So yeah, ITC seems to be the big winner here. But that doesn’t mean things could go smoothly yet.

That’s because firstly, ITC Infotech is going through a leadership change at the same time as it takes on Happiest Minds. For context, its CEO and MD, Sudip Singh, stepped down in January this year, with COO Manas Chakraborty taking over. So, with the acquirer itself going through a transition, integrating the two companies could be a little more challenging.

Then there’s the fact that Happiest Minds hasn’t exactly had a stellar business the last few years. Its operating profit margins and net profits have declined over the last three years, despite some ups and downs. Its constant-currency growth has also been slowing, coming in at 9.2% in FY26 against a 10% target. And its attrition rate has risen from 13% to around 17% over the same period.

And merging with a larger parent doesn’t automatically fix these problems. Clients will still expect AI-driven productivity gains to bring down their costs, which could put pressure on pricing and, ultimately, the revenue of the combined company.

Finally, you also have to remember that the deal still needs several approvals from the Competition Commission of India, stock exchanges, NCLT (National Company Law Tribunal) and shareholders. Any of these could delay the deal or change how it ultimately plays out.

So, even if ITC seems to have plenty to gain on paper, getting there won’t necessarily be easy.

For now, all we can do is wait and watch.

Until then…

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