IGate Corp., the California-based information technology (IT) services firm headed by Phaneesh Murthy, a former executive at Infosys Technologies Ltd, has applied to the US Securities and Exchange Commission (SEC) to sell 16 million shares to raise up to $392 million (around `1,800 crore).
The Nasdaq-listed firm will issue 10 million new shares at a maximum price of $18.26 (`837.76) a share; the other six million shares will be sold by existing shareholders, according to the 29 November filing.
The existing shareholders who will be diluting their stake are Ashok K. Trivedi and Sunil Wadhwani, co-founders of the company who are currently co-chairmen of the iGate board. Together, they hold a little over 24 million shares, amounting to about a 47% stake in the company.
During a 13 October call with analysts to discuss earnings for the quarter ended 30 September, iGate chief executive Murthy said the issue of shares was to facilitate mergers and acquisitions (MA) the company might want to do in the near term.
Citing unnamed people, The Wall Street Journal and The Economic Times reported on Tuesday that iGate was looking to raise up to $700 million as part of its joint efforts with private equity firm Apax Partners Llp to acquire the promoters’ stake in Mumbai-based IT services firm Patni Computer Systems Ltd.
At Wednesday’s closing of `467.35 on the Bombay Stock Exchange, the market value of Patni is `6,126 crore.
Brothers Narendra Patni, Gajendra Patni and Ashok Patni—along with family members—own 45.88% of the firm. At Wednesday’s closing price, the promoter holding would be worth `2,810crore.
Patni’s annual income is around $650million and iGate’s annual revenue is a little under $300million.
An iGate spokesperson declined comment on the firm’s possible acquisition of Patni. An Apax Partners executive in India also declined to comment.
Jeya Kumar, Patni’s chief executive and a member of the New York-listed firm’s board, and Narendra Patni did not respond to e-mails or text messages sent to their mobile phones. On Tuesday, after the news reports, shares of iGate fell 19.45% on Nasdaq to close at $20.
A private equity fund investor familiar with the development said Apax Partners will purchase a stake in iGate, and jointly bid for the promoters’ stake in Patni with $700 million of funding from Deutsche Bank AG.
“This deal will finally lead to a merger of the two companies with the private equity fund owning a significant stake and iGate management running the company,” said another investment banker who has advised Patni on several transactions.
Neither the private equity investor nor the banker wanted to be identified. Deutsche Bank declined comment.
“Such consolidations are inevitable going forward as without the right offshore presence and optimum presence in key markets like the US, tier-II firms like Patni or smaller firms like iGate will find it hard to break into the billion dollar club” said Abhijeet Ranade, associate director at multinational consultancy PricewaterhouseCoopers. “To be successful, you need to have scale.”
Ranade added that iGate’s ability to digest an acquisition double its size, both in terms of revenue and the number of employees, would be purely a function of that firm’s management bandwidth.