Caritor buys Keane for $854 million

Caritor Inc, a $100 million California-headquartered global provider of IT services with a predominant presence in India, is acquiring US-based Keane Inc for $854 million in an all cash deal.

Keane is a Boston headquartered publicly listed $900 million IT and BPO service provider. The combined entity will storm into the $1 billion league employing 14,000 employees

"The deal is at a multiple of less than 1 time revenue and 27 times net income and with the expected synergies this is attractive especially looking at comparative valuations in India," said H V Harish, Partner, Grant Thornton said.

The new entity will have Keane as its name and the company will be taken private. The chairman of Caritor, Mani Subramanian, will be the Chairman and CEO of the new firm.

Subramanian was among the key senior executives of Wipro during its growth days before leaving to start Caritor in 1993. The company was started as IT Solutions, which was then re-christened Caritor during 2004.

The transaction will be financed through a combination of equity to be contributed to Caritor by Citigroup Venture Capital International and debt financing that has been committed by Citigroup Global Markets, UBS Securities LLC, and Bank of America Securities LLC.

There is no financing condition to the obligation of Caritor to consummate the transaction. The transaction is expected to be completed in the Second Quarter of calendar year 2007.

Citigroup Venture Capital is already an investor in Caritor having picked up close to 15 per cent stake during 2005.

Caritor employs a little over 4,000 professionals spread across majorly in Bangalore and Chennai besides having a strong front-end in the US and Europe. Keane employs around 10,000 people also having a strong delivery presence in India across four cities.

According to a statement from Caritor, under the terms of the merger agreement, holders of Keane's common stock will receive $14.30 a share in cash. The purchase price represents a 19 per cent premium over Keane's closing share price on February 6, 2007.

Said Harish: "I see this as the next step in the creation of the next big player on the Indian IT services market. It also shows how aggressively and rapidly companies can grow through a combination of organic and inorganic growth."

He added that the company has reached scale and size with revenues of $ 1 billion with 14,000 employees (combined basis) which gives it a per employee revenue of $ 71,000 which is healthy and strong.