Info-Tech
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Mergers Acquisitions

Stake-sale may eat into Patni’s revenues

Adith Charlie

Mumbai, Dec. 22

Patni Computer Systems may have to contend with revenue losses of at least 15 per cent if its much-speculated stake sale plans were to go through, according to advisory firm Offshore Insights.

Unconfirmed media reports have suggested that the race to acquire 63 per cent stake in Patni has narrowed down to two bidders: a consortium of private equity funds Carlyle and Advent, and former Wipro Vice-Chairman Mr Vivek Paul; and a rival grouping comprising Mr Phaneesh Murthy of iGate, a software services firm, and PE Apax Partners.

“Our assessment shows that whichever way the deal swings a sizeable number of clients will desert Patni – a small loss of 15- 20 per cent in revenues may be expected if Carlyle buys Patni with additional possible risk of losing one or two real large client; and at least 25 per cent revenue loss if iGate wins the bidding process,” Mr Sudin Apte, Principal Analyst and CEO of Offshore Insights told Business Line.

(Offshore Insights conducted a study of more than 20 customers of Patni of diverse sizes, spread across various industries.)

With a listed entity such as iGate, the fear is that the acquisition could be a long-stretched one. The two companies will then need to go through an extensive process of open offers, de-listings and so on. In this phase, which could last as long as two years, Patni may face challenges of client-loss, higher attrition, and a possible pause in several investment initiatives, according to Mr Apte.

Thirty per cent respondents said they were unaware of iGate as a company and said that there was a good possibility of their shifting work from Patni to an alternate offshore provider if the NYSE-listed company were to be successful in its bid.

“On the other hand, 50 per cent of clients we spoke to believed that a private equity (PE) firm buying into Patni will not have a drastic impact as it will not indulge in day to day operations. Several of them felt a PE dominated board will bring in more discipline and financial prudence,” said Mr Apte.

However, the fear with a PE player is that it may focus on leveraging Patni’s offshore resources to serve companies in its investment portfolio, at the expense of the outsourcer’s existing client base. “One of the top clients of Patni expressed concern that it may lose the importance it gets if a PE firm takes over,” said Mr Apte.

Interestingly, 12 per cent of respondents felt that the stake sale may not happen at all. In the last 3-4 years, rumours of Patni brothers and PE firm General Atlantic (which collectively hold 63 per stake) selling out have surfaced time and again without any result. Players such as LT, IBM, NTT, Fujitsu have been linked as potential suitors to Patni time and again.

In the last one month alone, the Patni stock price has gone up 5.2 per cent on the back of stake sale related news reports. It closed at Rs 479.65 on the BSE today.

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Patni to hire 1,100 next year
Patni opens support centre in China
Patni, Japan co form $1.09-m venture

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