Patni Computer Systems, which battles bigger Indian tech peers for large outsourcing contracts, has identified two acquisition targets one each in the US and continental Europe - and plans to close at least one transaction by November this year. Multiple sources familiar with Patni’s acquisition plans said the company wants to cross the $1-billion mark in revenues through inorganic growth, and compete more effectively with TCS, Infosys and Wipro for large multi-year outsourcing contracts.
With around $700 million in revenues last year, Patni has almost $300 million in cash reserve to fuel its buyout plans. “Patni has been negotiating with both these targets for the past three months and possibly within the next few weeks, the term sheets will be exchanged,” said a person familiar with the negotiations, on condition of anonymity. He also declined to name the targets because it may affect the ongoing transaction.
A term-sheet refers to an agreement between two companies to pursue negotiations to conclude a potential M&A transaction. Another person said Patni was chasing an enterprise resource planning (ERP) services firm in continental Europe with around $400 million in revenues, while the US target with expertise in insurance solutions area is closer to $150 million in revenues. Banking and financial services industry (BFSI), which includes serving customers such as Guardian Life Insurance
Patni CEO Jeya Kumar says that the company is pursuing acquisition opportunities for accessing newer markets and scaling up existing domain capabilities. “We would either acquire a company for its pure IP within a particular domain, or for gaining access to a growing market,” Mr Kumar said. Mr Kumar, has been working on transforming Patni’s internal processes. Experts such as James Friedman of Susquehanna International Group (SIG) said the company has already moved in sync with tier-I suppliers by improving its operating margins from around 11% last year to almost 17.5% during the second quarter ended June this year.
“Patni has accomplished these goals through a combination of cost-cutting initiatives, including headcount reductions, travel controls, onsite/offshore adjustments, and utilisation efficiencies,” Mr Friedman said. “More surprising, the company has managed to grow again, with revenues increasing 3.5% QoQ,” he added.