The artificial intelligence (AI) battleground is heating up. Tier-2 IT services firm Coforge Ltd has become the latest Indian player to join its peers in the acquisition spree sweeping the sector. On Friday, the company announced the purchase of US-based engineering and AI-led services firm Encora at an enterprise value of $2.35 billion from Advent International, Warburg Pincus and other minority shareholders.
The all-stock deal will bring Advent and Warburg Pincus onto Coforge’s board, a move that could bolster its fundraising prospects. Coforge will issue shares worth $1.89 billion to Encora’s shareholders at ₹1,815 apiece, and may raise about $550 million through a qualified institutional placement or a bridge loan to retire Encora’s term debt.
The deal—India’s largest ever in IT services—could lift Coforge’s FY27 revenue by 28%, according to Jefferies India. Beyond scale, analysts point to strategic benefits, including plugging service-offering gaps in North America, particularly in the West and Midwest, and accelerating growth in emerging verticals such as healthcare and hi-tech. The deal is expected to close in four to six months.
Execution and integration, as always, will be critical and are seen as re-rating triggers. Coforge’s track record of handling mergers and acquisitions offers some comfort, even though management has yet to lay out a detailed integration roadmap for Encora. Its earlier acquisitions—SLK Global in 2021 and Cigniti in 2024, which accounted for about 9-11% and 16% of revenue at the time—were integrated smoothly and delivered margin gains.
But the size and structure of the Encore deal set it apart from Coforge’s previous deals. With a revenue of $514 million in FY25, Encora is seen adding around 26% to Coforge’s FY26 estimated revenue base and unlike earlier, client-centric acquisitions, Encora is primarily a capability-and leadership-led acquisition, making senior talent retention and cultural alignment critical, Motilal Oswal Financial Services said.
The objective, in this case, is to acquire specialized expertise, technologies and leadership rather than simply expand market share or servicing new clients.
Encora FY26 revenue is guided to be around $600 million and adjusted Ebitda margin at around 19%. Post merger, the combined entity would operate at 14% Ebit margin. Since Encore is operating at a higher margin profile, a further boost to margin is likely. The management expects this transaction to turn earnings per share (EPS)-accretive from the first year (FY27) itself, just like all its acquisitions.
However, valuation seems to be a sore spot.
“Historically (during FY21-25), Coforge had reported high-teen revenue compound annual growth rate on account of stable management, strong order book and specialization in select verticals of banking and financial services, insurance and travel. Encora’s organic revenue growth, on the other hand, was lower at 7-10%,” said Elara Securities (India) report dated 29 December. Despite lower growth, Coforge is acquiring Encora at 3.9x EV/sales and around 21x EV/Ebitda in line with Coforge’s multiples, which appears expensive, it added.
But that is not the only worry. “The stock has fallen 10% over the past three days, which in our view reflects EPS dilution risks,” added the Jefferies report dated 28 December.
Speculations about the contours of the deal before it was formally announced also weighed on investor sentiment. Jefferies warned that if growth or margins fail to improve, the acquisition could shave 7% off Coforge’s FY28 EPS.