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IGate Acquires Patni in an Rs 5,560 cr Deal

In an M&A deal which can be considered as largest in the domestic information technology (IT) industry, Bangalore headquartered iGate Corporation, a mid-size IT company, has signed a definitive agreement to acquire Mumbai's Patni Computer Systems (Patni), another mid-size IT company.

The acquisition of Patni, which was being speculated by the media for the last one month, is going to cost iGate Rs 5,560 crore or $1.22 billion and the combined enterprise will have an annual revenue of Rs 4,560 crore ($1billion). The deal was announced by iGate Corporation CEO Phaneesh Murthy, on Monday, in Bangalore.

Interestingly, iGate with expected annual revenue of around $300 million will take over $ 700 million Patni which is more than double of its size. Explaining why iGate acquired Patni Murthy said "It will help to scale up revenue, acquire more customers and expand the vertical capability in a big way. Bigger size (after entering the billion dollar club) will enable us to bid for big IT deals which are currently not suitably accessible to us."

The other synergies to be derived from going to market as a combined entity, according to Murthy, are: opportunity to cross-sell key solutions to a broader client base, opportunity to enhance efficiencies in operations and delivery services and economies of scale from consolidation of shared services.

The Deal
To acquire Patni, iGate will buy the entire 45.6 per cent shareholdings of the promoters - Patni brothers Narendra, Gajendra and Ashok, and 17.4 per cent held by private equity firm General Atlantic at a price of Rs 503.50 per share. The company will also make an open offer to other shareholders for acquiring a minimum of 20 per cent at the same price as per the Sebi rule. If the open offer is fully subscribed, iGate's total stake in Patni will reach 83 per cent.

To fund the total share purchase amount of $1.22 billion (Rs 5,560 crore) iGate has lined up a $700 million (Rs 3,192 crore) debt from Royal Bank of Canada, iGate's second largest IT client, and Jefferies & Co, a global securities and investment banking group.

It has also lined up a $270 million from Viscaria Ltd, a company backed by a private equity partner Apax Partners which will subscribe to iGate's optionally convertible preferred stocks. These preference shares can be converted to common stocks (equity shares) at a conversion price of $20.30 per share. IGate is listed and traded on the Nasdaq exchange in USA and Patni is listed on Indian stock exchanges.

The preferred stock investment by Viscaria may be increased by up to an additional $210 million if the need arises, Murthy said. If Apax's holdings get converted into equity, it will hold between 20 and 30 per cent of iGate's shares.

Merger not immediate
Replying to a question if iGate and Patni will merge financially, Murthy replied that a merger is certainly on the cards but no decision has been taken on route and time frame. To begin with, the leadership team from two companies will sit together to work on a strategy to present a combined front to the clients.

"As far as the market is concerned we will operate as one company but financially Patni will continue to operate as a separate company at least till the second half of this year," he pointed out. Patni has 16,556 employees, 282 customers, 22 global delivery centres, and offices in 30 locations worldwide. IGate, on the other hand, has 8,278 employees, 82 customers, seven global delivery centres, and offices in 16 countries. The clients list of two companies will be complimentary and there will be very little overlap, Murthy explained.

Transaction highlights

* Total deal size is Rs 5,560 cr

* Combined revenue is Rs 4,560 crore

* Combined headcount at 24,834 globally as on Sept 30, 2010

* Combined company will be a key player across several verticals including banking & financial services, insurance, manufacturing, retail, and media & entertainment

* Increased access to global customers

* Increased scale, leadership strength and engineering bench

Source: DHNS , Jan 10 , 2011