NASDAQ-listed US IT consulting firm Virtusa Corporation has agreed to buy a majority stake in Polaris Consulting & Services Ltd from its promoter Arun Jain and others including key stakeholder Citigroup for Rs 1,173 crore ($178 million).
Citigroup became the shareholder of Polaris through merger of its BPO arm OrbiTech with the Indian firm in 2002. Polaris was reportedly on the block for years.
The Chennai-based firm focuses on digital transformation particularly in the financial services industry. Organised into six client-centric units and multiple solution-centric units across the world, Polaris employs over 7,600 people.
Talking about the sale agreement, Arun Jain, chairman of Polaris Consulting & Services, said, “This will enable me to establish and pursue innovative models for social impact using design thinking in the areas of health and education, in addition to my focus on steering Intellect Design Arena Ltd into a global digital products powerhouse.”
Intellect Design houses what was previously the products business of Polaris. This unit was demerged into a separate firm last year. While Citigroup had exited this unit early this year, it remains to be controlled by Jain.
The promoter group led by Jain holds 28.9 per cent stake in Polaris and they would get around Rs 640 crore (just under $100 million) from the sale agreement with Virtusa.
Citibank owned entities are among those selling their stake. These entities held around 18.54 per cent stake as of September 30, 2015 and will get Rs 410 crore. It had previously cut its stake down the years.
Another key shareholder who is selling all his shares is ace investor Rakesh Jhunjhunwala. Jhunjhunwala holds around 5 per cent in Polaris and will get Rs 110.4 crore.
Virtusa has also made an open offer to buy another 26 per cent stake as part of the takeover code. This could cost it as much as Rs 590 crore if public shareholders tender all the shares up for purchase.
The transaction is expected to close during next quarter ending March 31, 2016.
Kris Canekeratne, Virtusa’s chairman and CEO, said, “The combination of Virtusa and Polaris enables us to provide end-to-end global BFS services and solutions, expand our addressable market and position us to pursue larger consulting and outsourcing opportunities.”
Upon closing of this transaction, Citigroup Technology Inc has agreed to designate Virtusa and Polaris as preferred vendors for global technology resource strategy for the provision of IT services on an enterprise-wide basis. In addition, Polaris and Virtusa agreed to certain productivity savings and associated reduced spend commitments for two years, which, if not achieved, would require Virtusa/Polaris to provide certain minimum discounts to Citi.
The parties agreed to amend Polaris’ master services agreement with Citi such that Virtusa would also be deemed a contracting party and would assume, and agree to perform, or cause Polaris to perform, all applicable obligations under the master services agreement. The preferred vendor status provides an opportunity to competitively bid for additional/new work.
Virtusa, which was founded in 1996 and headquartered in Massachusetts, offers its IT services to leading software vendors in banking & financial services, insurance, telecommunications, technology and media, information & education industries.
Credit Suisse acted as primary financial advisor and Spark Capital as co-advisor to Polaris. While J Sagar Associates acted as legal advisor for Polaris, AZB & Partners acted as legal advisor for Citigroup.
JPMorgan acted as financial advisor to Virtusa and, Goodwin Procter, LLP and ALMT Legal Bangalore were legal advisors to the US firm.
JPMorgan is also managing the open offer on behalf of Virtusa.