Coforge clinches $2.39-billion Encora deal in Indian IT’s biggest acquisition

Bengaluru: Coforge Ltd on Friday unveiled the largest acquisition by an Indian IT services company, agreeing to buy Encora, a US data analytics and digital engineering firm, for $2.39 billion — a deal that analysts said is steeply priced but could materially expand the company’s growth runway.

The transaction surpasses the previous record set in 2018, when HCL Technologies acquired seven software products from IBM for $1.8 billion.

California-based Encora, which ended with $516 million in revenue last year, is owned by private equity giants Advent International and Warburg Pincus. The deal will add about 9,200 employees to the workforce of Coforge, which ended last year with about 34,000 employees.

In a filing to the stock exchanges, Noida-based Coforge said it will fund the acquisition largely through equity, issuing shares worth $1.89 billion to Encora’s shareholders — Advent, Warburg Pincus, and a few minority shareholders. According to the agreement, Coforge will issue 93.8 million equity shares at ₹1,815.91 apiece.

It will thereafter raise up to $550 million via a qualified institutional placement (QIP) to retire Encora’s debt.

Together, the PE investors will eventually own 20% of Coforge, which ended this week with a market capitalization of $6.2 billion. They will also retain the right to appoint two directors on the board of Coforge, which does not have any promoter and is completely owned by public investors.

“This is a defining moment for the organisation,” Coforge chief executive officer Sudhir Singh told investors and shareholders on Friday evening. “This acquisition will ensure the next eight years are as exciting, if not more exciting, than the last eight years.”

“When we add this asset and we look at what the firm becomes, we become a $2.5-billion tech services firm with a core $2 billion coming from AI-led engineering data and cloud services alone,” said Singh.

Expensive buy

Encora’s adjusted Ebitda of 19% translates to about $114 million, according to the filing. At more than 21 times Ebitda or earnings before interest, taxes, depreciation, and amortization, analysts are calling it an expensive purchase.

“Essentially, paying over 21 times Ebitda is a very expensive acquisition, but then, the company is using its shares to fund this, so investors shouldn't complain,” said an executive, on the condition of anonymity. “However, the possibility of a QIP could explain the reason why the stock declined.”

The company’s shares fell 3.67% on the National Stock Exchange (NSE) to ₹1,674, while the Nifty IT fell 1.03% to 38,572.3 points.

Typically, minority investors experience some dilution when a company raises capital by issuing shares through the QIP route.

“QIP is one of the many funding options being considered only to retire the debt. If we do decide to do a QIP, it will only happen around closing, which is around six months away. We shall also explore other options of funding other than a QIP, hence there is a possibility that a QIP may never be triggered,” said the statement from Coforge.

Ashutosh Sharma, vice-president, research director at Forrester, also said the purchase came at a relatively high price point. “Coforge is paying a price that’s almost four times the annual revenue (of Encora),” he said. “It clearly offers a very good exit to Encora's existing owners, otherwise they may not have agreed to this deal.”

Sharma added that the success of the acquisition depends on how well Coforge is able to integrate Encora's capabilities into its broader organization, “and how well they are able to leverage the synergies across the two organizations”.

Another expert said Encora’s engineering talent would boost Coforge's growth but said execution would be key.

“Encora brings deep engineering talent and strong client relationships that complement Coforge’s vertical strengths, especially in BFSI, travel, and insurance,” said Phil Fersht, chief executive of HFS Research. “Together, this creates a more credible end-to-end transformation partner.”

Fersht added: “The opportunity is significant, but execution will be critical. Coforge must integrate talent, delivery models, and go-to-market motions quickly without disrupting Encora’s engineering culture. Success will depend on how effectively leadership converts combined scale into repeatable, AI-enabled delivery outcomes.”

In acquisition mode

Coforge, which ended last year with $1.47 billion in revenue, making it the country’s seventh-largest IT services firm, has been looking at acquisitions for some time now. In December 2024, it spent ₹2,000 crore to buy Hyderabad-based Cigniti Technologies, an engineering services firm.

Coforge’s other larger peers, too, have looked at acquisitions. Tata Consultancy Services Ltd (TCS), the country’s largest IT services firm, spent $774 million this year to buy two firms, even as it agreed to spend $6.5 billion over six years to set up a 1 GW data centre business.

For Coforge CEO Singh, who has steered the company past peers over the last couple of years, the Encora acquisition comes as a shot in the arm. Coforge, which grew its revenues 31% last year, has been India’s fastest-growing IT company, and this acquisition is expected to further boost its growth.

One of the key reasons to acquire the company was to tap into its client base and scale their business, Singh said.

“As we’ve had conversations with leaders of the top accounts of Encora, it's very apparent to us that they have lost or walked away from a lot of business just because they did not have scale when it came to BPS (business processes services), when it came to AI-led QE (quality engineering), when it came in some cases to enterprise platforms, especially cloud based ERP (enterprise resource platforms), and in some cases when it came to data and cloud based operations as well,” said Singh.