Bruce DeAlmeida - 607Jane D’souza - 620

Kevin Fernandes - 625Kim D’souza - 626

Marshaneil Sequeira - 631Morvin Rodrigues - 633

Serah D’Almeida - 648Sherry John – 650

Introduction

iGATE Patni (NASDAQ: IGTE) is an information technology firm

headquartered in Fremont, California, USA. The company was founded by

Bala and Ashok Trivedi.

iGate Patni specializes in business data processing and uses a structure

known as iTOPS (integrated Technology and Operations Systems) to meet

customer demands.

In an M&A deal which can be considered as largest in the domestic

information technology (IT) industry, Bangalore headquartered iGate

Corporation, a mid-size IT company, signed a definitive agreement to

acquire Mumbai’s Patni Computer Systems (Patni), another mid-size IT

company.

The Services provided by them include: IT consulting; application

development, data warehousing, business intelligence solutions,

ERP/enterprise solutions, BPO/business service provisioning, infrastructure

management, testing/independent verification and validation, and contact

center services. Offices are located in 16 countries and serve businesses in

various fields.

The acquisition of Patni, which was being speculated by the media for the

last one month, is going to cost iGate Rs 5,560 crore or $1.22 billion and

the combined enterprise will have an annual revenue of Rs 4,560 crore

($1billion). The deal was announced by iGate Corporation CEO Phaneesh

Murthy.

Interestingly, iGate with expected annual revenue of around $300 million

took over $700 million Patni which is more than double of its size.

The reason why iGate acquired Patni was that it would help to scale up

revenue, acquire more customers and expand the vertical capability in a big

way. Bigger size (after entering the billion dollar club) would enable them to

bid for big IT deals which are currently not suitably accessible to them.

They considered it as an opportunity to cross-sell key solutions to a broader

client base, opportunity to enhance efficiencies in operations and delivery

services and economies of scale from consolidation of shared services.

Marking the biggest acquisition of the India information technology (IT)

industry, Nasdaq-listed iGate the completed the acquisition of Patni

Computer Systems’. The combined entity was known as iGatePatni.

iGATE

• NASDAQ listed (IGTE) since 1996

• International operations in 17 countries

• Fully-integrated technology and operations firm

• Focused vertical strategy with 80+ enterprise clients

• Over 8,000 employees

• 2010 revenue of $281 million

• Headquarters: Fremont, CA

• Founded: 1986

PATNI

• Shares listed on BSE, NSE, and ADS on NYSE

• IPO in 2003

• 297 customers across 37 countries

• Strategic alliances with leading technology and software providers

• Over 17,500 employees

• 2010 revenue of $702 million

• Headquarters: Mumbai, India

• Founded: 1978

THE DEAL

iGate along with private equity player Apax acquires 63 per cent stake (46

per cent from Patni’s promoters and 17 per cent from General Atlantic) in

Patni Computer Systems in a deal worth up to $1.22 billion. This included

the cost of the mandatory open offer for garnering 20 per cent more at a

price of Rs 503.5 a share.

iGate had committed debt financing of $750 million for the acquisition,

which took its net debt to around two times the fully consolidated, adjusted

Ebitda. The combined entity’s (iGate plus Patni) anticipated free cash flow

generation would not only enable iGate to service the debt comfortably, but

also reduce its net leverage levels going forward. Further, Apax has

committed equity financing between $270-480 million. Overall, the iGate

management expected the deal to be accretive by 2012 on a cash earnings

per share basis.

The deal was completed in June 2011 and Patni was listed on the Indian

bourses till its completion, post which the new promoters looked at a US

listing of the company.

The Patni-iGate combined entity had annual revenues close to $1 billion,

enabling it to bid for large-scale deals. The combined entity had better

pricing power given the increased offerings, even as their combined costs

remained largely unchanged. The combined Ebitda for the last 12 months

stood at around $215 million and cash and equivalents close to $450 million

(including Patni’s $318 million). Patni generated quarterly Ebitda of $38

million and iGate $17 million.

BENEFITS OF THE DEAL

The wide discount in Patni's valuations is on account of its lower growth and

dwindling margins in the last few quarters. They had not been able to take

advantage of the global IT outsourcing demand recovery due to internal

issues. iGATE's entry had expected to change Patni's fortunes.

First, it settled the long pending ownership woes of Patni, thereby offering

focused leadership. Second, iGATE strengthened Patni's banking and

financial vertical. Patni had traditionally focused on insurance,

manufacturing, retail and distribution segments. These verticals accounted

for nearly two-thirds of the revenue.

In the last few quarters before the deal, the banking and finance vertical had

seen a sharp turnaround globally. But this had not benefited Patni; the

domain made up for just over 11% of its revenue. For its larger peers, BFSI

contributed more than 40% of total revenues.

iGATE enjoyed a higher exposure to BFSI vertical, which was suppose to

strengthen Patni's offerings. iGATE had shown a higher double-digit growth

in the last few quarters in both sales and profits. Its operating profitability

had also been stable during the period. This could boost Patni's growth,

which languished in the lower single digits.

The business synergies, too, were significant. While iGate’s strength was in

the banking and financial services domain, Patni had expertise in insurance,

manufacturing, retail & distribution, communications, media & utilities

verticals. With just two common clients, one being a large revenue

contributor (GE), the client overlap was negligible for both the companies.

This enabled the tech companies to tap in significant cross-sell

opportunities. Analysts believed retention of clients (of Patni) remained a

key monitorable as Patni did not undertake critical work for its clients,

making it easier for them to switch vendors.

With both the managements speeding up employee interaction and holding

workshops to address employee concerns about the deal, retaining the

combined workforce of over 24,000 people was not an issue. The companies

also used tools like wage hikes to curb the high attrition rate. Also, a

stronger employer brand meant more growth avenues for the employees.

SALIENT FEATURES OF THE ACQUISTION

Patni had a “For Sale” tag for long time. But deal prospects fizzled out

many times due to lack of consensus among the promoters and

unwillingness of the brothers to sell their stake. Finally on 10th Jan

2011 iGATE CEO Phaneesh Murthy (ex Infosys HR head) announced

the acquisition of PCS in a closely fought war with Japanese firms

Fujitsu and NTT Docomo.

iGATE bought the 46% stake of the 3 brothers and of General

Atlantic (17%)also at Rs. 503.5 per share.

According to SEBI laws, if a company was acquiring more than 15%

shares, then it also has to make an open offer to public for acquiring

atleast 20% of more shares thus taking the total purchase amount is

$1.22 billion and hence making it the largest deal in domestic IT

industry.

iGATE has a revenue of about $300 million whereas PCS has a

revenue of$700 million. The combined enterprise will have revenue of

over $1 billion. PCS is almost double in size to iGATE in terms of

employees also.

ADVANTAGES

This deal would help iGATE shed its small company image and

propel it into mainstream Indian IT industry.

iGATE customers will benefit from a more disciplined delivery

method that was followed by PCS.

Patni could now enter into BFSI sector (Banking, Financial, Services

and Insurance).It would end up ownership issues at Patni.

It would give increased access to global customers, increased scale,

leadership strength and engineering bench.

The new company would have two $100million+ customers, two

$50million+customers and 36 $5million+ customers under its belt.

DISADVANTAGES

Overall $1 billion revenue is not a big deal. Already 7 companies are

above iGATE-Patni. As a psychological mark, it was valid only when

there were 3-4companies in the league.

A big client tends to prefer small company for reasons like service,

management attention and flexibility. If it is satisfied by the company,

then it will surely avail its services more in near future. By this small

companies create a name and space for themselves and hence survive

in the industry. So if two companies merge and form a billion dollar

company, then some old clients will surely rethink on their decision

whether to continue with it or not.

Our Opinion

In our opinion the deal was good for iGate and Patni as the revenues grew

drastically as well as their customer base. As their new management is in

place we hope they grow as per the industry standards. Also if they are able

to service their debt efficiently this is a good deal.

Thank You