Persistent Systems Lifts Nagarro Stake, Eyes Buyout

Persistent Systems is poised to become India's seventh-largest tech services firm following its increased stake in German software engineering company Nagarro. The company now holds 94% of Nagarro's shares, a threshold under German regulations that allows for a buyout of remaining shareholders and the eventual merger of Nagarro into Persistent's German entity.

This strategic acquisition, initially announced in June for $1.3 billion, significantly enhances Persistent's revenue, adding nearly $1 billion annually. Crucially, it bolsters Persistent's footprint in Europe, which will constitute a larger portion of the combined company's business operations.

The Pune-based firm achieved this through a phased approach, including a €81-a-share bid that secured 83% ownership by September 17. A subsequent secondary offer raised the stake to 94%, with approximately $1.1 billion paid, funded through a combination of debt and equity, as noted by Kotak Institutional Equities.

This move is significant as Persistent aims to climb India's IT industry rankings amidst a challenging market environment where tech firms are acquiring growth to counter AI-driven revenue declines. The management anticipates the acquisition's completion by March next year, projecting a combined revenue of at least $2.7 billion.

While Persistent CEO Sandeep Kalra views the offer results as an endorsement of the strategic logic, some analysts, like those from Bank of Baroda Capital Markets, express concerns about the acquisition's return dilutive nature and potential execution challenges, especially given the funding mix.