MACR Assignment

Acquisiton iGate and Patni

Submitted By:
103 Vishal Sukhija
108 Neha Suri

Prologue
The Indian mergers and acquisitions (M&A) market especially
in the IT industry, has been upbeat about the acquisition of
majority stake in Patni Computer Systems Limited (Patni) by
iGATE Global Solutions Limited (iGate) and its affiliates (the
Deal). It is no normal feat for iGate to acquire a company that
is 2.5 times its size. Rarely does such a role reversal happen in
the Indian M&A landscape.

On January 10, 2011, iGate and its affiliates executed definitive

agreements with the promoters and some of the shareholders of
Patni to acquire 61.29%1 of the issued and paid up equity share
capital of Patni.2 Consequently, iGate and its affiliates had to
make a mandatory open offer to the public shareholders of Patni
under the provisions of the Securities and Exchange Board of
India ("SEBI") Substantial Acquisition of Shares and Takeover
Regulations, 1997 (Takeover Code 1997) to additionally acquire
a minimum of 20% of the issued and paid up equity share capital
of Patni. The Deal has been reported to the United States
Securities and Exchange Commission ("SEC") and SEBI.

With the announcement of the Deal, the year had clearly begun
on a positive note for the Indian M&A market. It is evident that
the glittering M&A trends in 2010 have continued in the first half
of 2011 too. Though the market dipped slightly in the second and
third quarters of 2011, the number and value of M&A deals
remained comparable to the corresponding periods in 2010.

While blatant display of global ambitions by Indian companies

through outbound deals worth USD 27.25 billion was the key
M&A trend in 2010, the shift from outbound deals to inbound
deals has been the notable M&A trend in 2011.3 During the first
three quarters of 2011, the inbound deals totaled a transaction
value of about USD 18.63 billion across 91 deals when only 63
inbound deals worth USD 6.60 billion were consummated during
the same period in 2010.4 Several inbound deals have been

consummated recently at premium valuations highlighting that

Indian businesses have become lucrative investment
opportunities for global corporates.

On the other hand, outbound deals declined in the first three

quarters of 2011 with 115 deals for a total value of about USD
9.58 billion as against 147 deals worth over USD 18.53 billion
during the same period in 2010. There were five deals valued at
over a billion dollars each transacted during the period, four of
which were inbound including the acquisition of majority stake in
Patni by iGate.

In this M&A Lab, we make a deeper probe into the Patni - iGate
deal, a billion dollar transaction which elevates the combined
entity to the coveted league of billion-dollar Indian IT companies,
in terms of revenues. As always, we seek to analyze the legal,
regulatory, tax, financing and few other commercial dimensions
of this Deal.

Executive summary

iGate and its affiliates, entered into definitive agreements with

the three founders of Patni and private equity firm General
Atlantic Mauritius Limited (GA) to acquire in aggregate 61.29%
of the total issued and paid up equity share capital (on a fully
diluted basis) of Patni, as of December 31, 2010.5

The agreement with the founder promoters of Patni was to

acquire 60,091,202 equity shares at INR 503.50 per share,
representing 44.37% of the total issued and paid up equity share
capital of Patni.6 Further, it was agreed that iGate and its
affiliates shall acquire from GA 22,913,948 (combination of
American Depository Share (ADS) and shares) at INR 503.50 per
ADS / share, representing 16.92% of the total issued and paid up
equity share capital of Patni.7

This agreement triggered Regulations 10 and 12 of the Takeover

Code 1997, mandating an open offer to the public shareholders of
Patni for acquisition of minimum of 20% stake in Patni of the
total issue and paid-up equity share capital, in terms of the
Takeover Code 1997. On January 11, 2011, iGate issued the public
announcement of the open offer, per the terms of the Takeover
Code 1997 for acquisition of shares constituting 20% of the
issued and paid up equity share capital of Patni.8 iGate further
issued a post offer public announcement dated May 09, 2011
declaring the completion of the open offer process by acquisition
of 2,70,85,565 (20%) equity shares of Patni from its public
shareholders.9 With that, iGate completed the acquisition of

Patni and now holds 81.29%10 of the equity share capital of

Patni.11

The transaction was valued at approximately USD 1.22 billion,

including the mandatory open offer made to the public
shareholders of Patni. iGate did not pay any non-compete fees to
the selling promoters of Patni. The transaction was funded
through a combination of balance sheet cash, debt and fresh
equity issuance.

iGATE Corporation (iGate Corp)

iGate Corp is the ultimate parent company of all iGate group companies. It was
incorporated on November 12, 1996 under the laws of the Commonwealth of
Pennsylvania. Mr. Sunil Wadhwani and Mr. Ashok Trivedi are the founder
shareholders of iGate Corp.24

iGate Corp is an outsourcing provider of information technology (IT) and IT-enabled

operations solutions & services and caters to different geographies through its
subsidiaries. iGate group has over 8,200 employees and 7 global delivery centers in
Australia, India, Japan, and Mexico with offices in 16 countries and 4 continents. The
shares of iGate Corp are listed on Nasdaq stock exchange.25

Pan-Asia iGATE Solutions (Pan-Asia)

Pan-Asia is an unlisted company incorporated on December 17, 2010, under the laws of
the Republic of Mauritius. iGate Corp indirectly owns 100% of the equity share capital

of Pan-Asia. iGate Corp and its affiliates have agreed to provide funding to Pan-Asia
for the purposes of acquisition of shares and ADS held by the Promoters and GA in
Patni and in connection with the mandatory open offer.26

Pan-Asia has been set up by iGate Corp to act as a platform for the global strategic
expansion in the IT space, and make certain strategic investments, principally in the
Asian and in time African and Middle Eastern regions, on an opportunistic basis. As on
January 11, 2011, Pan-Asia had not made any investment nor commenced any business
activity.27
iGATE Global Solutions Limited (iGate)

iGate was incorporated on December 27, 1993 under the Companies Act, 1956
(Companies Act). iGate Corp indirectly owns 100% of the equity share capital of
iGate. As on January 11, 2011, 75.21% of the total issued and paid up equity share
capital of iGate is held by iGATE Inc. and 24.79% of the total issued and paid up
equity share capital of the company was held by iGate Corp. The service offerings of
iGate include, software development, outsourcing and related activities. The shares of
iGate are not listed on any stock exchange.28

Patni Computer Systems Limited (Patni)

Patni was incorporated on February 10, 1978 under the Companies Act. The shares of
Patni got listed on BSE and NSE on February 25, 2004. As of January 7, 2011, the total
paid-up equity share capital of Patni was INR 26,33,02,660 consisting of 13,16,51,330
equity shares of face value of INR 2 each. There are no partly paid-up shares issued by
Patni. Patni and its subsidiaries are engaged in IT consulting, software development
and Business Process Outsourcing ("BPO"). Patni has over 16,000 employees and 30
international offices across the Americas, Europe and Asia-Pacific and 22 global
delivery centers across the world. The equity shares of the company are listed on the
BSE and the NSE. The ADS of Patni are listed on the New York Stock Exchange
("NYSE")

About iGATE:
iGATE is the first Business Outcomes driven integrated Technology and Operations (iTOPS) solutions
provider with a global delivery model. iGATE's unique business model aligns with the client's strategic
objectives to achieve operational efficiencies, increase cost variability and rationalize their current operating
environment. With industry expertise spanning decades, iGATE has developed the right solutions with its
Business Outcomes driven approach for industry verticals - Banking, Insurance, Manufacturing, Retail,
Health Care, Media & Entertainment and Telecom & Hi-Tech.

About Patni:
Patni is a global provider of IT services and business solutions, servicing Global 2000 clients. Patni services
its clients through its micro-vertical focus in banking, financial services (BFS) and insurance (I);
manufacturing, retail and distribution (MRD); life sciences; communications, media and utilities (CMU).
Patni's service offerings include application development and maintenance, enterprise software & systems
integration services, business and technology consulting, product engineering services, infrastructure
management services, customer interaction services & business process outsourcing, quality assurance and
engineering services.

Analysis of Igate
iGATE had 8,278 employees, 82 customers, seven global delivery centers, and offices in 16 countries, with
revenues of $252 million for the 12 months ended September 30, 2010 and offered services for industry
verticals - Banking, Insurance, Manufacturing, Retail, Health Care, Media & Entertainment and Telecom &
Hi-Tech.
With companies such as Mphasis, HCL, Infosys and TCS all crossing $1 bn mark and having a strong
position in IT industry iGate was lagging behind with $252 million of revenue. So On January 10, 2011,
iGATE Corporation announced the signing of a definitive agreement to acquire up to 83% stake in Patni
Computer Systems Ltd. at a transaction value of US$1.22 billion.The acquisition helped the combined
iGATE-Patni entity get within threshold of US$1 billion in revenues as iGate with an annual revenue of
around $300 million will took over $ 700 million Patni which is more than double of its size.

Transaction
iGATE's subsidiaries signed definitive agreements with the three founders of Patni Computer Systems, viz.,
Mr. Narendra Patni, Mr. Gajendra Patni and Mr. Ashok Patni, and private equity firm General Atlantic, to
acquire their 45.6% and 17.4% stakes, respectively, at a price of Rs.503.5 per share, amounting to a total
consideration of approximately $921 million.
The closing of the acquisition was subject to customary conditions, including receipt of required regulatory
approvals, and the completion of the open offer for the purchase of shares of the public shareholders of
Patni. Patni Computer Systems had 16,556 employees, 282 customers, 22 global delivery centers, and
offices in 30 locations worldwide, and reported revenues of $689 million for the 12 months ended
September 30, 2010.
iGATE's advisors included: Jefferies & Company, Inc., financial advisors, Kirkland & Ellis LLP,
international legal counsel, Khaitan & Co, Indian legal counsel, Kotak Mahindra Capital Company Limited,
Managers for the Open Offer, and Ernst and Young, tax advisors.

Deal Structure

Strategic Fit
Strategic integration of resources

At the time of consummation of the Deal, Patni had 16,556 employees and 282
customers who were integrated with the 8,278 employees and 82 customers of iGate.37
Also, iGates 7 delivery centres and offices in 16 countries now work in tandem with
Patnis 22 global delivery centres and 30 offices around the world.38

The combined entity of iGate-Patni has the capability to serve companies across
verticals, including banking and financial services, insurance, manufacturing, retail,
and media and entertainment. When a company does not have the width of verticals,
then it normally gets restricted in terms of growth. Hence, Patni was unable to take on
bigger deals or huge orders. With this Deal, there is now scope for cross selling and
improvement in margins.

While the combined strengths of the entities has given a boost to the business and
market proliferation of iGate, it would also help the customers get better service, access
to more service lines and deeper pools of expertise.

Combined company will have a strong presence across several verticals including
banking & financial services, insurance, manufacturing & retail, communication &
media, and utilities.

Advantages from acquisition:

1. Analysts said the iGate-Patni combination, a new entrant to the billion-dollar club, will be a
formidable rival to other India-heritage players of similar scale such as Mahindra Satyam, MphasiS
and Syntel, while competing with top IT firms Tata Consultancy Services ( TCSBSE 0.54 %),
Infosys and Wipro on some deals. The combined entity has two $100-million clients, two $50million clients and 36 $5-million clients.

2. An expanded pool of talent, diverse expertise across multiple verticals, higher level strategic end-toend service offerings and an established management team with a track record of proven execution
are expected to strengthen iGATE's competitive position as a top-tier player in the highly-fragmented
global IT industry.
3. The combination will create a compelling go-to-market strategy with iGATE's differentiated iTOPS
and outcomes-based business model augmented by Patni's delivery expertise and focus on microverticals.
4. Sustained growth in this segment lies in the ability to create a differentiated market focus that
extends beyond the previous generalist approach adopted by most Indian service providers.

Highlights:

Combined headcount at 24,834 globally as on Sep 30, 2010

Combined company will be a key player across several verticals including Banking & Financial
Services, Insurance, Manufacturing, Retail, and Media & Entertainment

Increased access to global customers

Increased scale, leadership strength and engineering bench

iGATE expects to realize multiple synergies from this combination:

Opportunity to play in larger deals and more verticals

Opportunity to cross-sell key solutions to a broader client base

Opportunity to enhance win ratio based on selling combined strengths

Efficiencies in operations and delivery services

Economies of scale from consolidation of shared services

Patni - iGate deal: Gateway to success

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, less than half Patni's size, has offered to pay 503.5 per share to buy a 63% stake in
Patni, backed by equity from private equity and loans from foreign lenders.
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 wil 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.
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 is 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.

Why igate erased patni name post merger?

Control, Ego and Business strategy
1. Control: without full control, their management risks that an active shareholder could
interfere or disrupt their future roadmap. Buying up the remaining Patni shares mitigates this
threat and management opted to pull this trigger sooner rather than later.
2. Ego: iGATE is known to be an aggressive group of managers. They set high standards for
themselves and their clients, and this attitude comes right from the top. Phaneesh Murthy,
CEO, has done what many in the industry thought was impossible: acquire a larger service
provider by levering up his balance sheet. The strategy has worked so far - iGATE Patni has
surpassed the billion dollar revenue threshold. His team still has a lot of work to do, but first
he wants to cement his role as leader.
3. Business strategy: In order to reach the 2017 target, management will need to integrate
the two delivery organizations. The company could chose to do this while managing a dualbrand. We think this option would simply confuse both clients and internal management. The
better choice would be to integrate the company under one brand reducing the associated
complexity, time and resources. Moreover, working a single brand will give management the
runway they need to evolve the companies combined strengths into new value propositions
and services.
Some pundits question why iGATE would retire the Patni name. Founded by three Patni
brothers, the company is one of the forefathers of an industry that has helped transform India.
Moreover, the company has an outstanding reputation for consistent service delivery to its
clients. Both are qualities that many smaller organizations pay for dearly. Our research
indicates that management may discard the Patni name, but not the strong delivery attributes
that made it successful. As we note in our 360 degree assessment, the company will need to
focus on several key areas beyond branding in order to reach its growth targets.
So here is our short list of predictions the industry observers will likely see at iGATE
Patni following this recent announcement. The company will:
1) delist the Patni name from the Indian bourse,
2) drop the Patni brand from all go-to-market and branding materials, and most importantly
3) fully integrate the two companys delivery organizations. To date, the union of iGATE Patni
has primarily been client facing.
Clients and prospects reports regarding the changes will likely be mixed. iGATE Patnis
largest clients in terms of revenue - will likely report little or only minimal changes to their
services and transformation programs. These key accounts are critical to stable cash flows
and to overall company stability. Any change here will trickle in over time. Prospects and

smaller clients will likely see the introduction of the companys iTOPS model for outcome
based pricing. At the heart of iTOPS is iGATE Patnis willingness to make investments in
parallel with clients in order to produce continuous improvements. Many clients need
additional time to transform their services to enable output based pricing, and iGATE Patni
often invests along with its clients. These investments involve both process and technology
and result in a business platform for the client.
The services industry will likely reflect positively on the announcement and the continued
integration of the two companies for the following reason: continued success would highlight
that mid-tier providers not only the global majors - can integrate their acquisitions to bring
new capabilities and scale to a broader brand name. Other mid-tier provides will leverage the
iGATE Patni model as a precedent to qualify and build acquisition and integration plans. Most
importantly, if the industry sees even a small uptick in consolidation stemming from this
acquisition, then buyers will have a greater number of qualified global services provider to
choose from.

Risks associated
Obviously there are always risks in any type of acquisition and there are actions that Patni clients can take:
Patni employee attrition risk Current Patni clients should assure their account management and
delivery teams that they have no intention of switching their current Patni engagements to a new vendor due to
the acquisition. Our research has shown a direct correlation between the level of client engagement and
branding that is done with the delivery teams and the attrition rate. We have seen attrition rates in the 6% to 8%
range when this is done correctly. Current Patni employees are more likely to remain at Patni if they see their
existing clients staying in place. Clients should seek confirmation, from Patni and iGate, of their intentions to
keep existing teams in place. They should also request an overview of any additional industry or technology
specific expertise that iGate will bring to each engagement.
Industry verticals could receive less attention Clients of both Patni and iGate should become
familiar with the various industry verticals currently covered by both companies. Verticals that are in common will
gain the advantages of the synergy between the two companies. Often acquisitions of this type are made to also
broaden a vendors footprint across additional industry verticals. Clients should request meetings with the
vendor senior management as soon as is practical to understand their intentions for the each of their industry
verticals.
Disruption Clients should identify the best practices they find valuable to the vendor senior management
teams so as to ensure they remain intact. They should encourage iGate and Patni to avoid the desire to make
every account management process and client-facing procedure consistent overnight. Careful study of all best
practices will help them leverage the synergy that can be created when bringing two successful companies
together.
Loss of brand recognition Clients should encourage iGate and Patni to brand the new entity in a
manner which best articulates the combined strength of the two companies. Since iGate is a much smaller
company, both clients and employees will be anxious to know the name that will be on their buildings, T-shirts,
and paychecks.
It is important for iGate and Patni to create their new "go-to-market" strategy in the next 60-90 days. 2011 will be
a critical transition for many clients as they look to their vendors to participate in more mission critical initiatives

and drive more value. If they aren't confident of the role this new combined entity can play, they might look to
other vendors to fill their needs.

Post merger dealing with issues

1. Integrate instead of separate
Integration wasnt an option. The two companies would work as rapidly as possible to ensure that
the best talents and assets across the board would work together instead of separately. We had a
lot of complementary skills and capabilities, said David Kruzner, SVP for iTOPS Solutions and
Consulting. We realized we had to do some major retooling and restructuring in order to truly
leverage this abundance of capable people and assets.

2. Ensure that everyone has the same solutions, definitions and

taxation
There were different perceptions of how each company had defined and described their solutions
businesses. Getting alignment up and down the organization was paramount.

3. Give the solutions leaders the opportunity to succeed

When we looked at the leadership level, we were trying to find people with the ideal attributes,
traits, capabilities and track record, Kruzner stated. We concluded that the actual tasks and
competencies building the right teams, identifying the opportunities, creating the solutions, and
delivering against the demand added up to a super-human job. We decided that the answer was
to identify and place the right enabling skills underneath each of our leaders.

4. The solutions development designs, process and operations

would be based upon the metrics

it was critical that they establish the right metrics to underpin the solutions business as soon as
possible.
5.

Fluid solutions development would be dependent upon setting up a three in a box

model
The Solutions Development Framework

Although iGate had a solutions development framework, post-acquisition of Patni it was by far
enhanced and improved with what Patni team was able to complement. This enhanced framework had
two major components the first part focused on defining the new solutions offering, and the
associated investments, and the second part dealt with the steps required to develop and take the
solution to market.

The new Integrated Solutions Development Framework (ISDF) had the full involvement and support of
both companies, and leveraged the strengths and experience that both parties brought to the new,
larger company. In fact, primary justification for the acquisition was that the two companies were
highly complementary in their competencies and skill sets. Patni had excellent technical capabilities
and strong micro-domain knowledge the understanding of sub-segments within a vertical and iGate
had a professional staff of process, domain and operational consultants.
The ISDF was based upon a standard product development Stage-Gate process, In fact, each of the
solutions that were evaluated and then developed through the process were the responsibility of a
Product Manager.

While other companies have built solutions development models that are

significantly different from their product development activities, iGate and the newly acquired Patni
decided to follow the more standard product development set of processes. The only major variance
was that there was a consulting analysis component at the front end to gain a deep understanding of
the customers needs.
Lessons Learned
In looking back upon the integration of the iGate and Patni solution development processes into one
that has become the backbone of the company, and a best practice in the industry, there are several
lessons that be pulled from their experience:

1. Get the basic terminology and decision making processes

established early
The solutions development process could have been designed and implemented much faster if
they had ensured alignment from the beginning.

2. Focus

The combined portfolio that resulted from the acquisition had too many solutions offerings. This

prevented both sales and marketing from giving each solution the attention that it deserved.
The company ultimately decided that it would have only 4 broad solutions that it would invest in
and take to market. This intense focus has already paid off. Currently iGate is focusing on
newer solutions.

3. Clarify everyones role

Integrating two different companies is always a challenge. For solutions businesses, getting the
offering development and implementation processes defined and smoothed out is an especially
thorny proposition. By all accounts, it appears that iGate has done a great job of moving from
the promise to the realization of the synergy and benefits it saw when it acquired Patni.