Virtusa would spend another Rs 587.7 crore ($90 million) to acquire an additional 26% stake in the BSE-listed firm, in compliance with SEBI's mandatory open offer norms.
Virtusa on Friday agreed to buy 53% stake in Indian IT company Polaris Consulting and Services for about Rs 1,173 crore, a move that will help the US-based firm garner a bigger chunk of the global banking and finance (BFS) industry.
Virtusa would spend another Rs 587.7 crore ($90 million) to acquire an additional 26% stake in the BSE-listed firm, in compliance with SEBI's mandatory open offer norms.
For the Massachusetts-headquartered Virtusa, the acquisition will give access to new clients and a pool of about 18,000 employees, providing it more muscle to pursue larger consulting and outsourcing opportunities.
"Virtusa expects to realise over $100 million of cumulative revenue synergies over the next three fiscal years from the business combination," it said in a statement.
Also, upon closing of the transaction in the next quarter, Citigroup Technology Group Inc will designate Virtusa and Polaris as a preferred vendor for providing IT services to Citi on an enterprise-wide basis.
A subsidiary of Virtusa will buy about 53% shares from certain promoter entities led by Arun Jain and some other shareholders, including OrbiTech at about Rs 220.73 each.
Virtusa will also make an offer to the company's public shareholders for another up to 26% of its shares for about $90 million (Rs 587.7 crore).
Virtusa intends to finance the transaction through a combination of cash on its balance sheet and debt. It has secured commitments for senior secured debt financing of $300 million from JP Morgan Chase Bank and Bank of America.
Polaris Consulting and Services had posted a net profit of Rs 47.34 crore, while its income from software development, support and BPO services stood at Rs 517.67 crore in the July-September 2015 quarter.
Addressing media in Chennai, Virtusa Chairman and CEO Kris Canekeratne said, "It is an all cash deal. The company will be taking debt upto $300 million. More than $200 million we have as cash (on hand)."
Stating that the companies have been discussing for more than six months on the deal, he said, "As soon as we file for the approvals on the deal, we will increase it (stake) to 75%. Subsequent to that, we expect two companies to be publicly listed companies separately."
"Together we can greatly expand the capabilities of services we provide. Polaris strengths are in global banking predominantly on corporates. Virtusa strengths are on retail banking..", he said.
"We can expand the services offered by both the companies. Virtusa addresses 50% of the market, Polaris can address the remaining 50% on banking and financial services", he said.
Polaris Consulting and Services, Chairman, Arun Jain said the sell out to Virtusa was part of a journey.
"I had similar belief of customer relationship and performance when I met Kris (Virtusa Chairman) in March. They have got some outstanding performance and it is Kris whom I trust and whom I could pass on the baton", he said.
Post the agreement with Virtusa, he said it would give time to focus on other passions like healthcare and education sectors but did not elaborate.
Responding to a query, Kris said Citigroup Technology was contributing 48% of revenues to Polaris Consulting and Services. He said the transaction was likely to close to by January 2016.
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