IT giant Virtusa buys Polaris Consulting and Services

US-based Virtusa Corp. will buy a 53% stake in Polaris Consulting and Services Ltd, a digital transformation and financial technology company for Rs 1,173 crore (approx $180 million).

In September, The Times of India had reported that Virtusa was discussing a potential acquisition of Polaris Consulting in a deal valued at $350 million (Rs.2,310 crore).

Polaris is a competitor against Indian offshore players providing financial services-focused software services and whose primary role is to help the likes of Citi, Bank of Tokyo Mitsubishi and multinational insurance corporations develop and maintain their technology backbone.

Chairman and CEO of Virtusa, Kris Canekeratne, said: “Polaris brings a terrific team and an attractive, blue-chip client base to our organisation”.

The combination of Virtusa and Polaris is expected to create a global provider of IT services and solutions to the banking and financial services industry.

Upon closing of the transaction in the quarter ended March 2016, Citigroup Technology Inc will designate Virtusa and Polaris as a preferred vendor for providing IT services on an enterprise-wide basis.

The companies expect to generate $100 million of revenue synergies in the next three years as they cross-sell more products and services into their existing customer bases.

He added: “We are enthusiastic about working with the Polaris team to build out our platform and offer clients a distinctive set of offerings”. Further, in accordance with the requirements of takeover rules, Virtusa will make an unconditional mandatory open offer to Polaris’ public shareholders to buy up to an additional 26% of the outstanding shares of Polaris, which is estimated to cost $90 million (R588 crore). The Polaris name would be retained and the entity would go to market under the Virtusa Polaris name.

Polaris has 7,650 employees, and produced pro forma revenue of $150M over the six months ending Sep. 30. It will fund finance this transaction through a combination of cash from internal accruals and debt. It has secured commitments for secured debt financing of $300 million from JP Morgan Chase Bank and Bank of America. As of the end of September, the firm had cash, cash equivalents and short- and long-term investments totalling about $44.8 million.

When queried why merger with Virtusa or listing of Virtusa’s Indian subsidiary through a reverse merger of Polaris Consulting were not considered, executive vice president and chief financial officer Ranjan Kalia said such options would be considered at a latter stage if warranted. Goodwin Procter, LLP and ALMT Legal Bangalore acted as legal advisors to Virtusa.