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iGate buys Patni for $1.2 bn scripts a David and Goliath story January 11, 2011

Posted by Gyaniz in News You Can Use.
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The headlines say iGate takesover Patni for 1.2 bn dollars. The takeover is seen by analysts as a David and Goliath scenario. While Patni registered revenues of $518.7 million in the 9 months ended September 2010, the corresponding figure for iGate is less than half of that, at $199.5 million.

The deal values Patni at around eight times EBITDA and at around 1.8 times revenue. The valuation appears rich for any mid-tier firm but compares poorly with the big IT companies, where Infosys, Cognizant and TCS quote at over 20 times EBITDA and between 5-8 times revenue. But the public markets have valued mid-size firms differentially for several years now. Two bankers who worked on the deal said Patni’s valuation was good, factoring in its growth profile in recent years. “Patni remains a turnaround story for the acquirer,” they added.

The combined revenues of the merged entity will take it into the billion-dollar league. This is expected to place iGate in a better position to compete for deals against the likes of TCS, Infosys and Wipro. Smaller IT companies have in recent times struggled for revenue growth and profitability, as they are unable to offer scale efficiencies or attractive pay packages to retain staff. “The huge scale will enable us to mine out more deals as we bring a better value proposition to the table,” said Murthy, who had previously attempted to break into the big league by acquiring Satyam Computer, which eventually went to Tech Mahindra.

Source: TOI

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