Will Patni 'Gate'crash into billion dollar league?

BANGALORE, INDIA: iGate Corporation's likely acquisition of Patni Computers will catapult the combined entity into the billion dollar revenue league. This augurs well for the combined entity as economies of large-scale operation will result in the new entity bidding successfully for larger IT outsourcing contracts whilst improving the margins for the company in the next 12-24 months.

With IT outsourcing contracts in an upswing in the next 6 months, the combined entity can look forward to bagging large outsourcing contracts in the next 12 months. 2011 will be a good year for Indian Information Technology Services as companies in the United States increase their budgetary allocation for IT spending, feels Datamonitor India.

Commenting on the potential deal, Ramchandra Naik, practice leader, company and market intelligence, Datamonitor India opined that both companies will benefit from the likely deal.

“For iGate Corporation, with revenues for the combined entities of close to US$1 billion, it can represent to its customers its capabilities in executing larger outsourcing contracts. Similarly for Patni Computers, the deal will help the company to gain access to the large number of portfolio companies of Apax Partners, the private equity firm that is partnering with iGate Corporation in the acquisition of the promoters' stake in Patni Computers Limited,” he said.

Apax Partners is one of the largest PE firms in the world with significant investments in companies in the consumer, retail, healthcare, financial and business services. Further, these investments are spread across different geographies including emerging economies.

The iGate-Patni Computers combine could potentially look forward to leveraging the strategic investments in companies made by Apax Partners in terms of business expansion across different industries and geographies. This will enhance the value of the combined entity in the long run and will benefit all the key stakeholders in the company.

According to Sai Chandra Kanala, senior analyst - technology, company and market intelligence, Datamonitor India, the combined entity is likely to have its share of integration-related challenges especially with its customers and employees.

“Some of the customers of Patni Computers may not feel very comfortable doing business with the new management team. Similarly, some of the employees of the acquired company will feel out of place due to cultural issues especially when the acquiring company is a smaller entity. Therefore, the combined entity is likely to witness attrition at both — customer and employee level in the next 12 months,” he opined.

However, iGate Corporation does have a strong management team in place and they would have done a thorough due diligence regarding Patni Computers' strengths and delivery capabilities. The management of both the companies would put in place appropriate measures to ensure that its key customers and employees stay with the merged entity and benefit from a larger scale of operations.

With 2011 portending to be a good year for Indian IT services companies, the iGate-Patni combine can look forward to bagging some large contracts that will firmly ensconce the combined entity in the billion dollar league.