IGate Patni Deal

About Patni Computers

Patni Computer Systems Ltd. (Patni) is one of the leading global providers of Information
Technology services and business solutions. Over 16,000 professionals service clients across
diverse industries, from 30 international offices across the Americas, Europe and Asia-
Pacific, and 22 Global Delivery Centers in strategic locations across the world.The company
has serviced more than 400 FORTUNE 1000 companies, for over two decades.

The vision of Patni was to achieve global IT services leadership in providing value-added
high quality IT solutions to our clients in selected horizontal and vertical segments, by
combining technology skills, domain expertise, process focus and a commitment to long-term
client relationships.

About iGate

iGATE Corporation is an information technology firm headquartered in Fremont, California

which provides complete end-to-end services that integrate Consulting, Technology, Business
Process Outsourcing & Provisioning. It has several years of experience across different
industry verticals at an international level and a strong understanding of the diverse business
challenges faced by global enterprises. This coupled with thought leadership in IT based
Business Process Outsourcing has contributed to the development of the iTOPS Solutions
Model which enables iGATE to provide a delivery model with outcome-based pricing and
ensures that they bear the business risk of their clients.

Putting it into context

India's club of $1 billion-plus information technology and IT-enabled services companies got
a new member, with iGate's $1.2 billion acquisition of Patni Computer Systems . iGate
backed by private equity firm Apax Partners, less than half Patni's size, has offered to pay
503.5 per share to buy a 63% stake in Patni which amounts to around $921m.
This marks a personal triumph for Mr Phaneesh Murthy , first and foremost, a remarkable
recovery from disgraced defeat. The acquisition will end ownership woes in Patni and help
the company build its pipeline in the banking and financial services vertical, in which iGate
earns a large chunk of its revenues. 

The combined entity, around $1 billion in size, will help customers access more service lines
and improved domain expertise. It can also bid for large projects competing against IT
behemoths including TCS, Infy, Wipro and HCL. 

And with a high revenue per employee count, it will mount pressure on the entire industry to
upgrade. Clearly, deals such as these bring value across the board and not just to small and
mid-size companies that have struggled to grow and make profits over the last three years. 

Benefits to Patni and IGate

Patni
Clear roadmap ahead in terms of growth
Entry into BFSI vertical
Ends ownership issues at Patni
iGate
Combined entity of $1b will ensure big
ticket deals
Help in employee branding as there will be
greater confidence in a bigger company
Increased efficiency in delivery and
operation of services
Can enter a broader array of services
which is Patni’s competency

Consolidation in IT sector

Consolidation in the mid-size IT space began in 2008, when MindTree acquired Aztecsoft to

boost its outsourced product development. In 2009, the IT sector reportedly saw close to 92
M&A deals largely in the small and mid-sized IT space. The number rose to 115 in 2010. 

The trend will intensify in the post recession period as financial mergers and acquisitions in
the West have resulted in substantial additional business in the financial software vertical.
The demand from retailers has also been strong, though demand from manufacturing is still
weak. 

The lagging sector will catch up as the global recovery gathers momentum. IT biggies and
specialised companies are expected to bag more orders, with forecasts of an annual growth of
20-25% in this fiscal. The corresponding growth rates of mid-sized IT companies are forecast
at around 10-15%. Consolidation is the way forward for small and mid-sized companies to
move up the value chain and stay in business. 

What if the other top players had bought Patni – Implications and Future

Even as US based iGate have closed the deal on Patni, local Indian majors such as TCS,
Infosys, Mahindra, Wipro and HCL still shy away from major deals in the local market. And
this despite the fact that local buyouts offers some definite advantages.

Indian IT companies are following a conservative acquisition strategy of building brick-by-

brick, or what Wipro describes as a string-of-pearls strategy. Transformative deals are few
and far between because the market rewards IT companies based on sustainability of
revenues.
What if Scenario – If the biggies had bought Patni

Wipro Mahindra or HCL Infosys or TCS

It would have helped For both, Patni’s For TCS it would
them put more application and have added up as an
distance between development and additional 10%
itself and CTS both maintenance(ADM) business and not
vying for that 3rd business would have made much of a
place in the industry. complemented difference. The high
The 2 also share existing service lines profitability fixated
synergies in the Infosys would not
product engineering have looked it as an
services business option due to cultural
and policy issues

References

timesofindia.indiatimes.com/tech/.../Deal...iGate-Patni/.../7254545.cms
www.moneycontrol.com/.../dealigate-marks-patnis-entry-into-bfsi-ceo_511915.htm

‘India’s Big IT fights shy of local buyouts’ – Economic Times, 20th Jan 2011