Persistent Systems shares tank 11% after €1.27 bn all-cash Nagarro acquisition deal

Brokerages have expressed concerns about Nagarro’s slower revenue growth and lower margins, potential integration challenges, and the high valuation of the deal.

Persistent has already secured a 21% stake in Nagarro. The acquisition will be financed through a €1.4 billion bridge loan from Barclays. The management said that the acquisition will be earnings per share (EPS) accretive from its first year.

Additionally, this deal is expected to increase the revenue from Europe from the current 8-9% to 22%, thanks to Nagarro’s established presence and strong client relationships across Germany, France, Italy, Spain, and Israel.

The acquisition also broadens Persistent System service offerings beyond banking, financial services, and insurance (BFSI), technology, and life sciences into industrial, automotive, consumer, and public sectors.

While management expects margins to remain broadly stable, increased clarity on integration, cost synergies, and the path toward margin convergence is needed, given Nagarro’s lower profitability, a Motilal Oswal Financial Services research report said.

Nagarro reported an EBIT margin of 10.9% for CY25 and 12.1% for Q1 CY26, compared to Persistent’s EBIT margins of 15.6% for FY26 and 16.3% for Q4 FY26, the Motilal Oswal report said.

The ability to execute over the next few quarters will be a key factor to monitor, as it remains uncertain how much value Persistent can derive from the acquisition through integration and cross-selling, the report said.

The brokerage expressed caution regarding the service-line mix, noting, “We are relatively more cautious about integrating ERP, a more mature and competitive service line compared to Persistent’s core digital engineering business.”

PL Capital highlighted a notable disparity in the growth and margin profiles of Persistent and Nagarro. The report also noted business risks associated with the vertical presence; except for 2-3 verticals, near-term growth in other business units is expected to remain challenging at mid-single-digit levels.

Persistent has focused mainly on the build side, while Nagarro has excelled in the managed services segment. PL Capital projected a 120-basis-point margin dilution at the gross margin level and a 200-basis-point dilution at the EBITDA level. However, despite additional amortisation and interest expenses, integration is projected to be EPS accretive, resulting in approximately 4% EPS growth by FY28E, PL Capital said.

With a combined revenue of $2.9 billion, the Persistent-Nagarro Group will become the second-largest digital engineering company globally and the seventh-largest technology services company in India.

The company justified the premium as a strategic move to accelerate growth, shorten timelines, and mitigate the execution risk typically associated with organic growth over 5 to 7 years. On integration, Persistent’s management explained that their Integration philosophy aims to preserve what made both Persistent and Nagarro successful while leveraging complementary strengths to create exceptional value for all stakeholders.

They also emphasised the existing cultural bridges between India and Europe, stating, “A natural India-Europe bridge already exists. Nagarro operates natively across the India-EU corridor. We do not have to build these connections.”

Pari Natrajan, CEO and Co-Founder of Zinnov, a consulting firm, remarked that the acquisition created a unique combination. “The combined group possesses the engineering depth, geographic scale, and AI capabilities necessary to win and deliver large, complex deals globally. Its revenue footprint is now diversified across the US and Europe.

Persistent’s discipline and execution track record reassures me that this combination will unlock real value. This is the kind of decisive move that the moment calls for,” Natrajan stated.