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Nearly two years after iGATE acquired Patni Computer Systems, the amalgamation process is inching towards completion.
Now, with court approvals in India pending, the merger of Indian entities – iGATE India and Patni India – is expected to be completed this year.
In May 2011, the Nasdaq-listed iGate acquired a stake in Patni, a company listed on the Indian bourses, for about $1.22 billion (Rs 5,560 crore).
Growing responsibility
“When we were doing this deal, people said that seven out of 10 transactions in mergers and acquisitions fail. When you borrow close to a billion dollars, the responsibility becomes 10 times bigger,” iGATE Executive Vice-President and Chief Financial Officer Sujit Sircar told Business Line .
“We are close to successfully completing the acquisition. We have surpassed all the parameters set for the merged company,” he added.
The top parameters set to gauge the success of the merger were customer retention, reducing attrition and being margin accretive.
“From the customers’ side, we haven’t lost any major client, and also have been able to sign multi-$100 million deals, which neither iGATE nor Patni could have done it in their lifetime as a standalone company,” said Sircar, who was instrumental in the acquisition.
The merged entity’s attrition fell to about 13-14 per cent during the period from the earlier 27-28 per cent. “We laid down that it would take us six-seven quarters to achieve 40 per cent gross margins and 25 per cent EBITDA margins, which we achieved it in the third quarter itself,” he added. The company is also close to winning another $100 million deal, he said, but declined to divulge details.
iGATE, which has about $600 million in cash and is adding about $200 million a year, is in a comfortable position, and would look at retiring some debt in 2014, he added.
CHALLENGES
“What we needed was scale. Together with Patni, we got about 27,000 people. This acquisition was an absolute necessity,” he said, adding that raising debt was a challenge.
Since the company had only $150 million in cash, iGATE raised about $770 million through high-yield bonds (with 9 per cent interest), $330 million from private equity firm Apax Partners and $265 million after delisting Patni.
Other challenges, he added, were the magnitude of the crosser-border transaction, integration of companies from different geographies and employees.
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