Wipro to acquire SAIC’s global oil and gas : Angel Broking,

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Wipro to acquire SAIC’s global oil and gas IT services business
Wipro will acquire US-based Science Applications International Corporation’s
(SAIC) global oil and gas IT practice for an all-cash consideration of nearly US$150mn
(~`675cr). The purchase is valued at approximately 0.8 times the revenue and six times
the EBITDA on a trailing 12-month basis. The deal is expected to be completed by Juneend.
The purchase covers only the IT business of the firm's oil and gas vertical, which
provides consulting, system integration and outsourcing services to global oil majors.
SAIC’s IT business is expected to contribute US$188mn to the top line annually, with
operating margin of 13.5%. Hence, margins of the energy and utilities vertical are
expected to come down initially but then increase going forward. The energy and utilities
vertical, which currently contributes 10% to Wipro’s revenue, is expected to inch up to
11.1% after this acquisition. Consequent to the deal, nearly 1,450 employees are expected
to transition to Wipro across North America, Europe, India and the Middle East.
The completion of the acquisition is subject to customary closing conditions and regulatory
approvals and Wipro said it would be able to integrate this business in the first quarter of
FY2012.
SAIC’s IT business will contribute merely ~2.3% to the company’s top line. We currently
keep our estimates unchanged, owing to the ongoing transformation phase in the
company. We maintain our Accumulate view on the stock with a target price of `507.