Persistent To acquire Infospectrum’s outsourced product business: Anand Rathi

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Persistent
To acquire Infospectrum’s outsourced product business
Persistent will acquire the OPD business of Infospectrum,
(formed in 1996) and its subsidiary, Infospectrum India Pvt. Ltd.
for US$6m (1x Infospectrum’s revenue, zero-debt), to be paid
over 18 months. The transaction is expected to close in 4QFY11.

 Details. Persistent would thereby acquire ~200 experienced
software professionals in Nagpur. As part of the integration of the
two businesses, the CEO, CFO and COO of Infospectrum India
would join Persistent Systems’ operations. The CEO will augment
the sales efforts; the other two would be part of, respectively, the
operations and support functions.
 Synergies. Persistent would gain access to 20 clients of
Infospectrum (only two overlaps). Persistent plans to up-sell and
cross-sell to them its analytics and mobility services. Infospectrum
has clients across Europe, the US and Africa. This would enable
Persistent to strengthen its foothold in European markets
(Persistent obtained ~86% of its TTM revenue from North
America) and give it access to customers from verticals such as
aerospace, defence, complex manufacturing, maritime,
transportation and logistics, satellite imaging and GIS.
 Valuation. At our target price, Persistent would trade at 14x
FY12e earnings. Infospectrum would contribute only ~2.8% to
Persistent’s FY12e revenue; hence, we retain our estimates.