Posted by Jan Erik Aase on January 10, 2011
"iGATE Corporation (NASDAQ: IGTE), the first Business Outcomes based integrated technology and operations company, today announced that its subsidiaries have executed definitive agreements to acquire a majority stake in Patni Computer Systems Ltd. (NSE: PATNI, NYSE: PTI), the Mumbai-based IT services and BPO company. The transaction is valued at approximately $1.22 billion, including the mandatory open offer to the public shareholders of Patni. The transaction is expected to be completed in the first half of 2011. iGATE expects the transaction to be accretive by 2012 on a cash earnings per share basis. "
-- Excerpt from iGate press release, January 10, 2011
Now that the acquisition has been announced, it is expected that current Patni customers will be cautious and concerned, but it would be unwise to assume that they are ready to switch vendors. The reality is, application development and maintenance (ADM) transitions are not easy, they have the potential to cause a lot of disruption, and are more likely to impact the client’s end customers. In addition, client current priorities are focused on new technologies and keeping pace with their industries. If they are happy with their existing relationship they won’t divert the attention needed to switch out the vendor due to an acquisition. Besides, acquisitions in the tech space are more common these days. Our research shows that Sourcing & Vendor Management Professionals are better prepared to articulate their concerns and expectations to the acquiring firms. They are less likely to switch vendors today, due to an acquisition, than they were 5-7 years ago.
Our interactions with some of Patni’s clients show they have confidence in Patni’s onshore and offshore teams who are servicing their accounts today. These same clients also reveal that an acquisition by iGate shouldn’t disrupt their delivery teams and therefore the change in ownership will have minimal impact. In fact, one of Patni’s biggest clients, GE, is reported as saying it prefers the scenario involving a buyout by iGate. The big advantage iGate has is its current leadership team. Led by Phaneesh Murthy, its management team would be a big influence in keeping current Patni customers and driving new sales. Forrester believes that the combination of Patni and iGate is synergistic, and the sum of the two will be greater than the current strength of each individually.
Obviously there are always risks in any type of acquisition and there are actions that Patni clients can take:
Patni employee attrition risk – Current Patni clients should assure their account management and delivery teams that they have no intention of switching their current Patni engagements to a new vendor due to the acquisition. Our research has shown a direct correlation between the level of client engagement and branding that is done with the delivery teams and the attrition rate. We have seen attrition rates in the 6% to 8% range when this is done correctly. Current Patni employees are more likely to remain at Patni if they see their existing clients staying in place. Clients should seek confirmation, from Patni and iGate, of their intentions to keep existing teams in place. They should also request an overview of any additional industry or technology specific expertise that iGate will bring to each engagement.
Industry verticals could receive less attention – Clients of both Patni and iGate should become familiar with the various industry verticals currently covered by both companies. Verticals that are in common will gain the advantages of the synergy between the two companies. Often acquisitions of this type are made to also broaden a vendor’s footprint across additional industry verticals. Clients should request meetings with the vendor senior management as soon as is practical to understand their intentions for the each of their industry verticals.
Disruption – Clients should identify the best practices they find valuable to the vendor senior management teams so as to ensure they remain intact. They should encourage iGate and Patni to avoid the desire to make every account management process and client-facing procedure consistent overnight. Careful study of all best practices will help them leverage the synergy that can be created when bringing two successful companies together.
Loss of brand recognition – Clients should encourage iGate and Patni to brand the new entity in a manner which best articulates the combined strength of the two companies. Since iGate is a much smaller company, both clients and employees will be anxious to know the name that will be on their buildings, T-shirts, and paychecks.
It is important for iGate and Patni to create their new "go-to-market" strategy in the next 60-90 days. 2011 will be a critical transition for many clients as they look to their vendors to participate in more mission critical initiatives and drive more value. If they aren't confident of the role this new combined entity can play, they might look to other vendors to fill their needs.