iGate to acquire majority stake in Patni

by CXOtoday Staff    Jan 10, 2011

acquisitioniGate (Nasdaq:IGTE), the business outcomes based integrated technology and operations company, today announced that its subsidiaries have executed definitive agreements to acquire a majority stake in Patni Computer Systems, the IT services and BPO company. The transaction is valued at approx $1.22 billion, including the mandatory open offer to the public shareholders of Patni and is expected to be completed in the first half of 2011.

iGate expects the transaction to be accretive by 2012 on a cash earnings per share basis. The combination is expected to create a compelling go-to-market strategy with iGate’s differentiated iTops and outcomes-based business model augmented by Patni’s delivery expertise and focus on micro-verticals.

“It has been our stated intent to scale revenues, customers, and expand our vertical capability. We believe the threshold of a billion dollar revenue will facilitate faster adoption of our iTops for Business Outcomes model,” remarked Phaneesh Murthy, CEO, iGate.

He added, “The objective is to synergize the leadership team of both iGate and Patni to create, over time, a world-class integrated leadership team which will drive the combined company to newer horizons.”

iGate expects to realize opportunities like to play in larger deals and more verticals or even to cross-sell key solutions to a broader client base. Along with opportunity to enhance win ratio based on selling combined strengths, the deal will also boast efficiencies in operations and delivery services and economies of scale from consolidation of shared services, infomrd the company.

iGate’s subsidiaries have signed definitive agreements with the three founders of Patni Computer Systems, viz., Narendra Patni, Gajendra Patni and Ashok Patni, and private equity firm General Atlantic, to acquire their 45.6 percent and 17.4 percent stakes, respectively, at a price of Rs.503.5 per share, amounting to a total consideration of approximately $921 million.

In accordance with the requirements of the Securities and Exchange Board of India (SEBI) and the applicable Indian rules on Takeovers and Mergers, iGate’s subsidiaries will make an open offer to the public shareholders to purchase an additional 20.6 percent stake in Patni. The aggregate price for the shares to be purchased in the open offer assuming full tender is estimated at $301 million.

The closing of the acquisition is subject to customary conditions, including receipt of required regulatory approvals, and the completion of the open offer for the purchase of shares of the public shareholders of Patni. Patni has 16,556 employees, 282 customers, 22 global delivery centers, and offices in 30 locations worldwide, and reported revenues of $689 million for the 12 months ended September 30, 2010. iGate has 8,278 employees, 82 customers, seven global delivery centers, and offices in 16 countries, with revenues of $252 million for the 12 months ended September 30, 2010.

iGate’s iTops solution methodology is designed to overcome the limitations of traditional outsourcing models. It addresses the problem of conflicting business interests between traditional outsourcing vendors and clients by allowing clients to use and pay for only the outcome. For the service provider, it also creates a discontinuity in the linearity of revenue with people iGate’s advisors include: Jefferies & Company, financial advisors, Kirkland & Ellis, international legal counsel, Khaitan & Co, Indian legal counsel, Kotak Mahindra Capital Company, Managers for the Open Offer, and Ernst and Young, tax advisors.

Terms and Financing of the Transaction:
iGate expects to finance the purchase consideration of $1.22 billion through a combination of cash-in-hand, debt and equity financing, including a potential public offering of up to 10 million shares. Viscaria, a company backed by funds advised by Apax Partners, will make an investment into iGate in order to facilitate the acquisition of a majority stake in Patni. iGate has agreed to sell to Viscaria $270 million of preferred stock convertible into common stock with a conversion price of $20.30 per share. The preferred stock investment by Viscaria may be increased by up to an additional $210 million based on the subscription in the Open Offer process and in the event that the Company elects not to move forward with a public offering. Details of the preferred stock transaction will be included in a filing on Form 8-K, which iGate expects to file shortly.

In addition, iGate has secured commitments for debt financing of up to $700 million in the aggregate from Jefferies & Company, and RBC Capital Markets to fund the consideration.