By Kimberly Fey, Director, Sourcing Industry Relations
Earlier this week, iGATE Corporation (NASDAQ:IGTE) announced that it has entered into definitive agreements to acquire 63% of the outstanding shares of Patni Computer Systems Ltd. (NSE: PATNI). The transaction is valued at US$1.22 billion. The combined entity will have close to $1 billion in annual revenue and more than 24,000 employees. Patni will remain an Indian public company and a subsidiary of iGATE.
According to iGATE, the combination will:
- Create a compelling new go-to-market strategy, with iGATE’s differentiated outcomes-based pricing model augmented by Patni’s delivery expertise and focus on micro-verticals;
- Position iGATE-Patni as a top-tier player in the highly-fragmented global IT Services industry; and,
- Provide a strong presence across several verticals, including Banking & Financial Services, Insurance, Manufacturing & Retail, Communication & Media, and Utilities.
Patni’s destiny has been on the line for a while, making customers and prospects a bit cagey. The acquisition reduces this uncertainty, which should help Patni with early-stage sales discussions and existing account growth. Likewise, the enhanced size of iGATE is likely to create growth opportunities for its existing accounts. Given this, morale in the ranks of both companies is likely to improve.
In addition, at least on paper, the two companies have several complementary verticals, such as Banking & Financial Services for iGATE and Insurance for Patni. This combination should create a broader cross-section of clients they can both pursue, and we can expect enhancements in the sales teams in the combined entity.
Still, although the combined entity will be close to the psychological barrier of US$1 billion (the “Tier 1” threshold five years ago), the other Tier 1 players are well ahead of that number today. The portfolio of services still has significant gaps in both ITO and BPO capabilities that will need to be addressed to fully compete with the big players. And it is questionable if we will see any significant difference in delivery scale and cost in the immediate future.
In sum, the combination of iGATE and Patni has promise, but the challenges of formulating a detailed strategy and integrating the two companies are significant and will have to be overcome before the promise of the scale can be realized.
The year has started off with a bang. Will we average a merger or acquisition a week? The industry surely could sustain it!
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