iGate buys 63% stake in Patni Computer for $1.

2billion
Patni Computer Systems, which is the country's seventh largest technology services firm, was finally acquired by iGate at $1.2 billion (Rs. 5,500 crore). The much smaller and ambitious Nasdaq-listed iGate Corp. is ringing up debt in excess of $700 million to finance the transaction. Apax Partners will support iGate in the buyout and an open offer is expected to hit the floor by April. iGate is acquiring a majority stake in a pioneer firm to go for big contracts. With the Patni buy, iGate will stand close to Tech Mahindra. It has been our stated intent to scale revenues, customers and expand our vertical capability, said iGate CEO Phaneesh Murthy. N R Narayana Murthy was an employee of Patni before he went on to create Infosys. The three Patni brothers Narendra, Gajendra and Ashok will sell their combined stakes of 45.6% at Rs. 503.5 per share along with private equity investor General Atlantic who holds 17.4% stake in Patni. iGate will make an open offer for a further 20.6% stake in Patni as a result of which its stake in Patni could range between 63% and 83%. The buyout was closed after many weeks of media speculation and rumours. The 63% will cost Rs. 4,400 crore for iGate-Apax, which would also make an open offer at the same price as required by regulatory law to minority shareholders of Patni to buy 20.6%, taking the transaction value to Rs. 5,500 crore. iGate is raising debt from the Royal Bank of Canada and Jeffries and Company. A further sum of $100 million will be raised from iGate's cash reserves. PE firm Apax Partners will invest anywhere between $270-$480 million through convertible equity (depending on response to open offer). Its stake could also therefore range between 20-34% in the merged entity. Subsequent to the acquisition, Patni shares closed at Rs. 464 up 0.82% on Monday. It is reported that Patni has 16,556 employees, 282 customers, 22 global delivery centres and offices in 30 locations worldwide with 12-month revenues of $689 million (Rs. 3,100 crore). While iGate has 8,278 employees, 82 customers, 7 global delivery centres and offices in 16 countries with 12-month revenues of $252 million (Rs. 1,100 crore). The reversed merger is expected to place iGate in a better position to compete for deals against the likes of TCS, Infosys and Wipro. Smaller sized IT companies have in recent times struggled for revenue growth and profitability, as they are unable to offer scale efficiencies or attractive pay packages to retain staff. Patni will also enable iGate to widen its client base and reduce its dependence on a few clients. iGate's top 10 clients bring 84% of total revenues versus Patni's 48%.. General Electric is one of the biggest customers for both companies and this is expected to bring synergies. The two companies also enjoy synergies in business verticals. While 30% of Patni's revenues come from insurance, 60% of iGate's revenues come from banking and finance. By leveraging both strengths, the companies plan to build a strong BFSI team. BFSI is the fastest growing business segment for the Indian IT sector. "The company will also look to leverage on Apax Partner's portfolio companies for winning IT and BPO deals. Patni's stronger manufacturing, retail and product engineering verticals will also prove a good diversification for iGate," said Sujit Sircar, CFO of iGate. The current members of the Patni board will remain at least until the deal is closed. In the next 3-4 weeks, two of iGate's senior officials will join Patni's board. Post the completion of the deal the roles of senior board members will also be defined. Murthy is expected to be the CEO of the combined entity. The combined headcount of the 2 companies as on Sept 30, 2010 is over 24,000. Murthy said that they will look to retain as many Patni employees as possible and there would be no need for major retrenchment. Patni has good presence in the western and northern Indian region, while iGate has offices in the south, which gives employees good options to move around the country. "Though Patni currently suffers from high attrition rates, this is expected to stabilize as employees are now assured job stability," Murthy said. Patni is expected to remain listed in India at least until the first half of next year. Murthy views Nasdaq, where iGate is listed, as the main listing market. "Trading at Nasdaq is strategic as far as branding is concerned," Murthy said.