The Patni brothers-promoted Patni Computers, along with private equity player General Atlantic will finally sign a deal on Monday with Nasdaq-listed iGate and Apax International to sell their stake.
The Patni Computer Systems board will meet in Mumbai on Monday to ratify the proposal. iGate has called a media conference in Bangalore to “make a corporate announcement”.
Narendra Patni, founder and promoter, and his two brothers, Ashok Patni, and Gajendra Patni, have been trying to exit the company for over four years now.
Founded in 1972, Patni Computers is a provider of Information Technology services and business solutions. The company has 23 international offices across the Americas, Europe, and Asia-Pacific, as well as offshore development centres in eight Indian cities.
iGate, headed by Phaneesh Murthy, along with Apax will pay around Rs 520 per share to acquire over 60 per cent stake in the company. This includes the 46 per cent by founder and promoter Narendra Patni and his two brothers and the 17 per cent held by General Atlantic. The company’s current market price is Rs 476.6 per share.
General Atlantic had invested $200 million in Patni in 2002. The investment of Rs 133 per share, has already got it a dividend of about Rs 79.50 per share. “So, if the deal price is in the range of Rs 525-550 per share, then General Atlantic will be making very strong returns,” said a report from SMC Capital. The other bidders eyeing the promoters’ stake were PE consortia Carlyle and Advent.
The deal is likely to be a leverage buyout, which is why the potential suitors had also secured financing from banks to fund the acquisition that is likely to cross one billion dollars. iGate-Apex have also managed to raise a credit line of over $600 million from Standard Chartered Bank, Deutsche Bank and Barclays. Other than the line of credit, iGate has also initiated a process to raise up to $392 million by selling 16 million shares.
From iGate’s point of view this will fit into its plan to become a $1 billion company. But analysts are concerned about how the integration will take place. “iGate is less than half of Patni’s size. Other than the integration challenges, there will be employee attrition issues as well,” said an analyst, requesting anonymity. Patni has a revenue of around $700 million, whereas iGate is a $230 million company.
Other than the revenue difference, Patni is also large in terms of headcount. As of 2009, Patni had a total employee base of 13,995, compare this to iGate’s 6,910 employee base. Patni as of September 30, 2010 had 282 active clients. Compare this to 80 clients that iGate has.
But like several mid-cap companies who are making big ticket acquisition to get into the big league, iGate too will get into the $1 billion league post this acquisition.
Earlier in 2007, private equity players Apax and Blackstone were eyeing the promoters’ stake, but the deal did not materialise over differences on management control and valuation mismatch.
