Bangalore: Nasdaq-listed iGate Corp. said on Thursday that it has completed the $1.22 billion (Rs 5,465.6 crore today) acquisition of Mumbai-based IT services company Patni Computer Systems Ltd.
iGate chief executive Phaneesh Murthy will be the chief executive officer (CEO) and managing director of the combined entity. The acquisition had been agreed to in January.
The principal stockholders of Patni included Narendra Patni, Ashok Patni and Gajendra Patni, who have been bought out along with private equity (PE) firm General Atlantic Llc.
Fresh challenges: Chief executive officer Phaneesh Murthy.
The 20% mandatory offer to the public has also been fully subscribed, giving iGate a total stake of 82.5%, Murthy said.
Both iGate and Patni continue to exist as separate listed entities, but the combined entity has a new go-to-market name of iGate Patni, and a new logo.
“Neither of the brands are strong enough on their own, though our clients know us, so we need to use both names for now,” Murthy said. “I don’t believe in family names in companies, however, so at some point that will go.”
He was leaning towards a single US listing in the future, but there were several regulatory hurdles in delisting Patni, so that will take a few more quarters, he said.
Murthy said a nine-member executive leadership team had been formed, “pruned” from a possible 22. While the other senior executive members of the team from Patni have thus exited, “no further separations” are anticipated, he said.
The Patni board has been reconstituted, with lawyer Jai Pathak as chairman, Murthy as CEO, Shashank Singh, co-head of Apax Partners India Advisers Pvt. Ltd, and Goran Lindahl, iGate board member, as new members. Vimal Bhandari and Arun Duggal will continue as independent directors.
With Phaneesh Murthy as Patni CEO, Jeya Kumar has stepped down. Surjeet Singh, chief financial officer (CFO) of Patni, will continue till 31 May and then step down. Sujit Sarkar of iGate will be the CFO of the combined entity.
The front-end, sales-team integration of about 350-400 people has been completed, while the larger delivery teams integration will take 18 to 24 months, he said. “We are in no hurry to integrate, as they are working well on their own.”
However, increasing utilization from the current 70% to about 80% was a key focus, particularly in the quest for margin expansion, Murthy said.
The company has targeted a 600 basis points increase in margins over the next two years, he said.
One basis point is one-hundredth of a percentage point.
“Fifty-five percent of our revenues are currently on the non-time and material model,” Murthy said. “As we move towards more outcome-based pricing, that will also help margin expansion.”
While iGate Patni will have a lead focus on two business segments—banking, financial services and insurance, and healthcare—other significant segments will include media and entertainment, manufacturing, retail, communications, energy and utilities, he said.
The combined entity, with revenue approaching $1billion, will enable it to compete better for large deals.
“Companies are willing to give you deals worth about 7.5-10% of your revenue,” Murthy said. “That means we can now go for deals in the $75-100 million range (on an annual basis).”
On the question of competition from large, established IT services companies, he noted that currently, about 9% of IT spend was being outsourced to India, and he expected that to go to about 30% by 2020.
“So when multiple people go to the market, they are not looking at the 9%, but at the remaining 91%,” he said.
The combined entity has an employee base of 26,000 and a client base of 360. It has two $100 million clients, two $50 million clients and 36 $5 million clients, besides 10 delivery centres across India, Mexico and Australia.