Nasdaq-listed IT services company Virtusa has acquired a majority stake in Chennai-based Polaris Consulting and Services for a total consideration of $270 million (about R1,755 crore) which includes the value of the mandatory open offer, reports fe Bureau in Bengaluru.
As part of the deal, Virtusa will acquire all of the outstanding shares of Polaris held by promoter and chairman Arun Jain and certain other minority stockholders, representing a 51.7% stake, at a value of R220.73 per share for a total consideration of $180 million (R1,173 crore). Accordingly, Jain will exit the company he founded in 1993. Further, in accordance with the requirements of takeover rules, Virtusa will make an unconditional mandatory open offer to Polaris’ public shareholders to buy up to an additional 26% of the outstanding shares of Polaris, which is estimated to cost $90 million (R588 crore).
This stock price purchase offer represents a 8% premium on Thursday’s closing of Polaris share on BSE. The enterprise valuation of Polaris following this deal is close to $348 million against its current market capitalisation of around $315 million, which is a 10% premium.
This acquisition is expected to create a larger IT services entity focused on the financial services segment, bringing together Virtusa’s strengths in consumer and retail banking and Polaris’ strong point in corporate and investment banking.
As of September 30, 2015, Polaris had approximately 7,650 employees with 12 development centres. For the six months ended September 30, Polaris reported a revenue $150 million with cash and other holdings of approximately $44.8 million.
Commenting on the transaction, Virtusa chairman and CEO Kris Canekeratne, said, “The combination of Virtusa and Polaris will enable us to provide end-to-end global BFS services and solutions, expand our addressable market, and position us to pursue larger consulting and outsourcing opportunities.”
The Polaris transaction is expected to close during Virtusa’s fourth quarter ending March 31, 2016. The deal has got a further boost with Citigroup, one of Polaris’ key customers and a stakeholder, agreeing to remain a client.
Virtusa expects to realise over $100 million of cumulative revenue synergies over the next three fiscal years from the business combination. It will fund finance this transaction through a combination of cash from internal accruals and debt.
For the fiscal fourth quarter ending March 31, 2016, the Virtusa management currently expects Polaris to contribute revenue of approximately $70 million.
Founded in 1996 and headquartered in Massachusetts, Virtusa has operations in North America, Europe, and Asia with over 9,800 employees.
Polaris has been in the news as a possible takeover target and had received several bids in the past. However, none of this could go through due to a mismatch in valuations.