Coforge Ltd. on Friday announced the acquisition of US-based artificial intelligence company Encora for an enterprise value of $2.35 billion or around Rs 21,138 crore. The purchase will be financed by share swap and an equity sale to institutional investors.
An equity value of $1.89 billion will be paid in the form of equity shares through preferential allotment worth Rs 17,032 crore by Coforge. The preferential shares will issued at Rs 1,815 apiece, which is at a premium of 8.5% of the previous close. This will result in shareholders of Encora holding approximately 20% of equity in Coforge, according to a stock exchange filing.
A bridge loan or Qualified Institutional Placement (QIP) of upto $550 million or Rs 5,000 crore will be floated to retire a term loan in Encora.
The transaction is an all-stock deal where the sellers, including Advent International and Warburg Pincus, will get a stake in Coforge and not take any consideration as cash.
The transaction is expected to be completed in 4 to 6 months subject to completion of the agreed conditions. The deal is subject to shareholder and regulatory approvals, including those from the Reserve Bank of India and US authorities.
About Encora
California-based Encora provides software engineering services for digital native companies and Fortune1000 enterprises. The company works at the convergence of cloud, data and AI, with service offerings that span Intelligent Process Design, Agent Native Product Engineering, Core Modernization, AI foundation, Data readiness and AIOps, according to a Coforge statement.
Encora has created one of the industry’s first composable AI platforms – AIVATM – to deliver Integrated agentic-orchestration and software engineering services. With composability at its core, AIVATM lets organisations compose their own intelligent workflows across engineering and business functions.
In FY24 and FY25, the consolidated turnover was $481 million and $516 million, respectively.
Coforge said the acquisition will create a $2.5 billion tech services powerhouse with both the scale and capability across AI-led engineering, cloud and data services to drive enterprise-grade AI-solutions.
Outlook
According to Coforge management, with Encora’s current margin profile and the anticipated synergies in the business, the combined business is expected to operate at an EBIT margin of 14% post-amortisation of intangibles that will be created as part of the purchase price allocation for this acquisition.
"Despite the primary infusion, the deal is not expected to be EPS dilutive on a consolidated basis because of the strong margin profile of Encora and expected synergies from the two businesses i.e. Coforge and Encora coming together," the statement said.
The new entity will set the benchmark for making the promise of AI real for enterprises. "In turn, this AI-infused core led growth, is likely to move Coforge’s already exceptional growth numbers to the next higher orbit," the statement said.
The AI-led engineering, data and cloud services alone are likely to deliver $2 billion revenue in FY27, as per company estimates. Coforge's North America business is expected to jump by 50% to $1.4 billion post-acquisition.
Encora will add 11 tenured client relationships of more than $10 million each with its top 10 client relationship tenures averaging more than 10 years.
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