On Thursday, Polaris Consulting and Services Ltd has entered into a definitive Share Purchase Agreement (SPA) with Virtusa Corporation (Virtusa), whereby a subsidiary of Virtusa will acquire around 53% of the paid-up share capital of Polaris from certain promoter entities led by Arun Jain and certain other shareholders, including OrbiTech Private Ltd.(formerly known as Orbitech Limited). Virtusa will purchase the shares at a price of around Rs 220.73 per share, aggregating to approximately Rs 1,173 crore.
Here are the five key implications of what the deal means for Virtusa:
Transaction
Virtusa through its subsidiaries will acquire 51.7% stake from certain shareholders and 26% unconditional mandatory offer to public shareholders (subject to maximum of 74.99 %). Transaction consideration would be $270 million in cash and closing is expected by end of March 2014.
Virtusa and Polaris together will now provide end-to-end service provider delivering next-generation, transformational BFS solutions including retail banking, corporate banking, capital markets, payments and others, a full global financial services and it also expands company's addressable market and enhances ability to pursue larger consulting and outsourcing contracts.
Financial Rationale
Around $100 million cumulative revenue synergies targeted over the next three fiscal, increasing mix of recurring revenue, geographic diversification and expansion and strategic use of India-based cash.
Financing
Cash on hand and low interest debt, upto $300 million transaction financing commitment in place, reasonable post-closing funded debt-to-EBIDTA ratio. Virtusa has secured commitments from senior secured debt financing of $300 million from JP Morgan Chase Bank and Bank of America in support of the transaction.
Financial impact of the transaction
Fiscal 2016, Polaris expected to contribute revenue of $70 million in fourth quarter ending March 31, 2016. Fiscal 2017, Polaris combination expected to be slightly dilutive to non-GAAP EPS. Revenue synergies including preferred vendor status at Citi, offset by two year Citi productivity saving commitments, if achieved, provide minimum discounts. Additional investments investments in Polaris in support of revenue growth and higher interest expense from deal-related financing.
Fiscal 2018 and beyond: Acceleration of revenue synergies margin accretion from roll out of delivery and shared services best practices, tax benefits related to interest expense, balance sheet deleveraging and anticipated additional equity investments
Here are the five key implications of what the deal means for Virtusa:
Transaction
Virtusa through its subsidiaries will acquire 51.7% stake from certain shareholders and 26% unconditional mandatory offer to public shareholders (subject to maximum of 74.99 %). Transaction consideration would be $270 million in cash and closing is expected by end of March 2014.
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Strategic rationale
Virtusa and Polaris together will now provide end-to-end service provider delivering next-generation, transformational BFS solutions including retail banking, corporate banking, capital markets, payments and others, a full global financial services and it also expands company's addressable market and enhances ability to pursue larger consulting and outsourcing contracts.
Financial Rationale
Around $100 million cumulative revenue synergies targeted over the next three fiscal, increasing mix of recurring revenue, geographic diversification and expansion and strategic use of India-based cash.
Financing
Cash on hand and low interest debt, upto $300 million transaction financing commitment in place, reasonable post-closing funded debt-to-EBIDTA ratio. Virtusa has secured commitments from senior secured debt financing of $300 million from JP Morgan Chase Bank and Bank of America in support of the transaction.
Financial impact of the transaction
Fiscal 2016, Polaris expected to contribute revenue of $70 million in fourth quarter ending March 31, 2016. Fiscal 2017, Polaris combination expected to be slightly dilutive to non-GAAP EPS. Revenue synergies including preferred vendor status at Citi, offset by two year Citi productivity saving commitments, if achieved, provide minimum discounts. Additional investments investments in Polaris in support of revenue growth and higher interest expense from deal-related financing.
Fiscal 2018 and beyond: Acceleration of revenue synergies margin accretion from roll out of delivery and shared services best practices, tax benefits related to interest expense, balance sheet deleveraging and anticipated additional equity investments