Patni deal likely this week; iGate-Apax frontrunner

With private equity company Advent withdrawing from the Patni Computer Systems stake sale deal, the combination of iGate-Apax International is the clear frontrunner. The deal is likely to be signed early this week.

A consortium of Advent and Carlyle, both private equity investors, were bidding. With Advent out, Carlyle might find it difficult to get a new partner at this juncture, said sources close to the development.

“The other thing that is going in favour of iGate is that it is not insisting on having a non-compete clause signed by the Patni brothers. This was something the PE consortium was insisting on,” said one of the bankers close to the deal.

The rival bids were for the 46 per cent stake of Patni’s promoters — Narendra Patni, Ashok Patni and Gajendra Patni — and the 17 per cent stake of General Atlantic.

iGate, headed by Phaneesh Murthy, bid in the range of Rs 525-530 per share, valuing the company at a premium of 7.5-8 per cent from its current market price of Rs 488.8 per share. Carlyle-Advent had bid at Rs 490 per share.

The Patni stake sale buzz has been on for several years, and every time the deal falls apart due to a valuation mismatch. At present, the share price is at Rs 488.8. This values the promoter stake of 45.8 per cent (60 million shares) at Rs 2,932 crore ($650 million).

The company’s outstanding depository receipts (ADRs, GDRs and SDRs), as of September 30, were 28.9 million. At the current price of $20.98 per receipt on the New York Stock Exchange, these are worth $580 mn (Rs 2,610 crore).

If iGate is successful in pulling this $1 billion-plus transaction through, it will be one of the largest deals in the Indian information technology services segment in the past year.

It also shows how mid-cap IT firms may need to look at an inorganic route to expand and grow fast. iGate has $230 million revenue and has been aspiring to be a $1-bn company.

Tech Mahindra’s acquisition of Hyderabad-based Satyam Computer Services (rebranded as Mahindra Satyam) is another example. The Mumbai-based IT firm acquired the 51 per cent stake in the company for Rs 2,889 crore ($640 million).

In the recent past, it is only Nasdaq-listed Cognizant that has shown a company can grow largely through the organic mode.