IGate Agrees to Buy a Majority Stake in Patni Computer for $1.22 Billion
IGate Agrees to Buy India’s Patni for $1.22 Billion
Adeel Halim/Bloomberg
The Patni Computer Systems Ltd. Company logo is displayed in Mumbai.
The Patni Computer Systems Ltd. Company logo is displayed in Mumbai. Photographer: Adeel Halim/Bloomberg
IGate Agrees to Buy India’s Patni for $1.22 Billion
Adeel Halim/Bloomberg
A rickshaw driver stands outside the Patni Computer Systems Ltd. headquarters in Mumbai, India.
A rickshaw driver stands outside the Patni Computer Systems Ltd. headquarters in Mumbai, India. Photographer: Adeel Halim/Bloomberg
IGate Corp. offered $1.22 billion for India’s Patni Computer Systems Ltd., bidding more than its own market value to triple sales in the world’s largest technology-outsourcing country.
IGate, backed by funding from Apax Partners LLP, will pay about $921 million to buy 63 percent of Patni from the founding family and General Atlantic LLC, followed by an open offer to acquire a 21 percent stake for about $301 million, iGate said in a statement today. The price of 503.50 rupees a share is 9.4 percent higher than Patni’s closing price on Jan. 7.
The acquisition would enable Fremont, California-based IGate, which vied with Carlyle Group for control of Patni, to add clients and expand in India after dropping out of the race for Satyam Computer Services Ltd. in 2009. If the open offer succeeds, it would complete the biggest acquisition of an Indian technology company, according to data compiled by Bloomberg.
“You have a company that’s far smaller, two and a half times smaller than Patni, acquiring it,” said Nitin Padmanabhan, an analyst at Indiabulls Securities Ltd. “What does it bring to the table? Nothing, they are very similar companies.”
IGate plans to fund the purchase via existing cash, raising debt and selling as many as 10 million shares, it said.
Viscaria Ltd., backed by Apax, will buy $270 million of securities convertible into iGate shares at $20.30 apiece, according to the statement. It may invest an additional $210 million depending on the success of the open offer and if iGate avoids a public share sale, according to the statement.
Force to Reckon
IGate has secured as much as $700 million in debt commitments from Jefferies Group Inc. and RBC Capital Markets, according to the statement. IGate hired Jefferies as its financial adviser for the Patni acquisition. Apax was advised by Standard Chartered Plc, said Topsy Mathew, managing director of mergers & acquisitions at the bank’s Indian unit.
Credit Suisse Group AG, Ambit Capital Pvt. advised the Patni family, Jeya Kumar, chief executive officer at Patni said on a conference call with reporters today.
The premium paid by iGate makes it the fourth largest acquisition among 11 deals in the past 30 days in India, according data compiled by Bloomberg.
Patni Computer rose 0.8 percent to 464.10 rupees at the 3:30 p.m. close in Mumbai. IGate declined by 1.54 percent on Jan. 7 to $19.16.
The deal will make iGate a force to reckon with, said CEO Phaneesh Murthy. The transaction is expected to be completed in the first half of this year, according to the iGate statement.
“We hope this will be an industry changing transaction,” he said. “We’re creating a billion-dollar enterprise with 25,000 plus employees.”
Vying With Carlyle
The agreement comes amid a recovery in technology investments held back by the global recession. Worldwide spending by businesses and governments, including on computer equipment and software, will grow 7 percent this year to $1.6 trillion, after falling by 8.6 percent last year, according to an Oct. 15 report from Forrester Research Inc.
In the U.S., the biggest source of revenue for Indian code writers, businesses and government will spend an estimated $889 billion on IT products and services next year, according to a Dec. 14 report from the Cambridge, Massachusetts-based researcher. Spending in the country will outpace gross domestic product growth as companies make up for orders delayed during the recession, Forrester said.
IGate and Apax had been vying with Washington-based Carlyle Group, the world’s second-largest private equity firm, for control of Patni, five people with direct knowledge of the transaction said in December.
Buyout Deals
A successful open offer would push the value of the acquisition above the $1.06 billion Redwood City, California- based Oracle Corp. paid for control of I-Flex Solutions Ltd. in 2006, according to data compiled by Bloomberg.
Private equity firms have poured $6.5 billion into the South Asian nation this year, more than twice the $2.5 billion they invested in the same period a year earlier, according to an Oct. 4 statement from Venture Intelligence, a Chennai, south India-based research company.
Buyout deals in the quarter ended Sept. 30 rose to $2 billion from $976 million in the same period last year.
To contact the reporters on this story: George Smith Alexander in Mumbai at galexander11@bloomberg.net; Ketaki Gokhale in Mumbai at kgokhale@bloomberg.net; Jay Shankar in Bangalore at jshankar1@bloomberg.net
To contact the editors responsible for this story: Jeffrey St.Onge at jstonge@bloomberg.net; Anand Krishnamoorthy at anandk@bloomberg.net
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