The much-awaited deal to acquire software services firm Patni Computer Systems has been completed, with the consortium of iGate Corporation and private equity major Apax Partners picking up a majority stake. The deal has been done at Rs 503.5 per share, valuing Patni at $1.45

billion (Rs 6,594 crore). The three Patni brothers, who together held a 45.6% stake, are selling their stake along with nearly a decade old investor General Atlantic. The iGate-Apax combine will pay $921 million for the 63% stake and the transaction is expected to be completed in the first half of 2011.

The deal will give iGate a delivery platform in India and allow the combined entity to bid for contracts along with the IT majors. With the acquisition of 63% stake from Patni founders and General Atlantic, the iGate-Apax combine is now expected to make an open offer for a 20.6% stake as per SEBi guidelines. The overall payout including the open offer for Patni will be $1.22 billion, where iGate-Apax combine could fork out up to $301 million in the open offer which also be made at Rs 503.5.

The deal involves Apax investing around $480 million in iGate, which will also raise debt to acquire Patni. It is the largest PE investment in the Indian IT/ITES space by a private equity firm after KKR's buyout of Aricent. Viscaria Limited, a company backed by Apax Partners, will invest  $270 million through preferred stock in the first leg of the transaction. This preferred stock will be convertible into common stock with a conversion price of $20.30 per share.

Apax unit Viscaria could invest an additional $210 million based on the subscription in the Patni open offer and if iGate does not move forward with a public offering. Phaneesh Murthy-led iGate has already registered an offering of 10 million shares of its common stock and up to $100 million aggregate amount of debt securities in October, 2010.

The share price of iGate closed at $19.16 on the NASDAQ on Friday, down by 1.56%.

iGate has also raised $700 million commitments for debt financing from Jefferies & Company, Inc. and RBC Capital Markets to fund the deal.

The deal is set to be one of the largest M&A deal in the Indian IT/ITES space, with Patni brothers Ashok Kumar, Gajendra Kumar and Narendra Kumar and General Atlantic cashing out.

The market value of Patni has never reached the peak it scaled in 2007 when the stock went up to Rs 624 and at a deal value of Rs 503.5 is at least 20% less than what it could have sealed three years ago. Even if the deal would have been sealed at around the same level as now back

then, the loss is in the opportunity cost of having cashed out in 2007.

Tech Mahindra's acquisition of fraud-hit Satyam Computer Services in 2009, valuing the company at $1.13 billion, was one of the largest deals before this in the recent times. iGate was also reportedly one of the contenders for Satyam.

Private equity bears a deep relationship to the deal since the beginning of the sale process of Patni. General Atlantic, a private equity firm is one of the early investors in Patni Computers. In 2002, General Atlantic picked up 17.80% in Patni Computer Systems Ltd for $100 million. It also did a partial exit and sold a 3.20% stake for $39.20 million in open market to to Japan-based Nomura India Investment Fund and Sloane Robinson of Mauritius. It retained about 14.65% of Patni Computer Systems.  This translates to a roughly 150% returns in about 9.2 years which is not such a handsome return, so to say. 

A spokesperson from General Atlantic commented saying, " We have been investors in Patni since 2002 consistent with our long-term investment horizon. We have been pleased to participate in the growth and success of this highly regarded company which has been an excellent investment for us and our investors."

Delisting on the Cards

A possible delisting of Patni Computers could be on the cards as the shareholders would prefer one listed unit, especially in the US. Phaneesh Murthy, CEO of iGATE Corporation said in the conference that no formal decision has been taken on this yet. "But over the long term, one listed company is better for all stakeholders. We would prefer to be listed on US exchange," said Murthy in the conference.

The share price of Patni is trading at Rs 466.4 per share at 2:57 pm today, up by 1.37%. This might make the open offer at Rs 503.5 an attractive proposition for minority shareholders.

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