Patni Acquired by iGate; integration holds key:: Anand Rathi

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Patni

Acquired by iGate; integration holds key
US-based iGate will acquire ~63% of Patni (45.6% held by Patni
promoters and 17.4% by General Atlantic) at `503.5/share. Post
the acquisition, a mandatory open offer for 20% of Patni’s shares
would be launched in Apr ’11. Total cost of the acquisition is
~US$1.22bn.

 Details. The deal is expected to close in 1HCY11. iGate will raise
debt of ~US$700m from Jefferies & Company and RBC Capital
Markets to fund the acquisition. iGate will issue equity to Apax
Partners for US$270-480m, depending on the response to the open
offer The transaction is expected to be accretive by ’12 on a cash
earnings basis for iGate, which had trailing 12-month (TTM)
revenue of US$252m and operating margin of 22.5%.
 Synergies. We believe the combination will help customers access
more service lines and improved domain expertise. The combined
headcount stood at 24,834 as of 30 September. The combined
entity would be able to bid for larger projects and sales & marketing
will be more aggressive for Patni. In terms of verticals, iGate has
~62% of its TTM revenue from BFSI, which would help Patni
build its pipeline in Financial Services.
 Risks. Integration of both companies will be the main challenge (as
it would take at least a quarter to materialize).
 Valuation. At our target price, Patni trades at 11x Sep ’11e (`425)
and `75 (valuing the cash above the average peer holding).