Patni Takeover Bid: A Sign of More Indian Acquisitions to Come?

By Tarun George

In the latest installment of the Patni takeover saga, the Indian Economic Times reported this morning that the iGate Corporation will sign a definitive agreement on Monday to buy a controlling stake in the company. The new combined IT firm will have over a billion dollars in revenue, and an international presence. It marks a turning point in global services, where Indian players are increasingly seen as targets for acquisition. So, what does it mean for the industry?

The background

Patni Computer Systems is the Indian IT firm said to have pioneered the offshore outsourcing phenomenon. Founded in 1972 by Narendra and Poonam Patni, it has since grown into India’s seventh-largest IT services firm with over 15,000 employees globally. The company has been on the selling block for several years now, but this is the first time a deal has actually materialized. A closely fought bidding war over recent months ended only a few days ago when private equity funds Carlyle and Advent International withdrew their offers.

iGate, backed by equity buyout fund Apax Partners, is expected to buy a 60% stake in Patni from the founders and current equity investor General Atlantic. At around $12 a share, the deal is said to be worth $915 million.

Trend towards India: More acquisitions to come?

iGate Corporation is an end-to-end IT services firm based in California. The company saw strong results this year, beating analyst expectations for the third quarter with profits of $14.3 million on revenues of $74.8 million. iGate also recently approved the registration of 10 million shares of company common stock, and Nearshore Americas wonders whether that extra financial flexibility will fuel more acquisitions in the not too distant future. One thing is clear: the company is in a strong position to continue expanding.

iGate is not the only company interested in India. Its supporting fund Apax, based in London, lately promoted the two heads of its Indian operations to the level of Partner in the company’s global framework. As the Times of India recently reported, “the elevation moves India into the same league as China as the only two countries in the Asia-Pacific region to have partners in the firm’s top management”. This takeover bid is only the latest evidence that it’s not just western outsourcing clients, but also western-based investors that are seeing a strong value offering from India. According to Information Week, the Apax-iGate partnership would likely obtain a $500 million loan to fund the acquisition of Patni.

Changes in the new company

Analysts are worried that the change in ownership of the newly merged firm will lead to serious issues. Offshore Insights founder Sudin Apte recently told The Economic Times, “Most clients feel that a substantially smaller provider like iGate buying India’s seventh largest IT services company will result not only in a long stretched acquisition and integration process as both firms are listed, but may face several issues such as higher staff attrition, losing several management members, and even changes in strategy”.

That being said, Apax Partners’ large number of clients will help, since the new merged firm will now have access to customers of other IT companies that are part of the Apax investment portfolio.