iGate, backed by private equity firm Apax Partners, has announced that it will acquire a 60.2% equity stake in Patni Computer (Patni) at Rs 503 per share.
The deal values the company at a market cap of $1.53 billion, a 11% premium to current levels. iGate will acquire nearly 63% of stake in the company (including outstanding Esops) for a value of $920 million. The offer price of Rs 503 per share is 9% lower than our expectation of Rs 550 per share.
The Patni-iGate combined entity will cumulatively cross the $1 billion revenue mark (CY10/FY11), which could help the company participate in larger deals.
iGate?s banking and media practices are stronger, while Patni has better capabilities in insurance, manufacturing and telecommunications. These are expected to help the consolidated entity grow faster.
Given the relatively large size of Patni versus iGate, we expect integration to be a challenge for the buyers.
Concerns also remain on the go-to-market strategy, branding and senior management retention in Patni. We expect more clarity on this to emerge over the coming few weeks.
We view the deal as a positive step for Patni as it removes the uncertainty that had prevailed regarding the same in the past two to three years. We will revisit estimates once further clarity emerges. We maintain our buy rating with a discounted clash flow based price target of Rs 600 per share.