Shares of German IT services firm Nagarro SE surged more than 92% in Xetra pre-market trading on Monday after Persistent Systems Ltd. announced a €1.1 billion voluntary public takeover offer for the company. Xetra is a trading venue operated by the Frankfurt Stock Exchange. The stock was indicated at €77.75, just shy of Persistent's €81 per share all-cash offer.
This comes as Persistent offered a 140% premium to Nagarro's unaffected share price and a 94% premium to its three-month volume-weighted average price. The company has already signed a share purchase agreement for a 21% stake, while support from Nagarro's management could take committed ownership to 30-35%. Persistent Systems management said it remains confident of crossing the 50% acceptance threshold required to complete the acquisition.
Photo Credit: Xetra Trading Platform
It has also ruled out raising equity through a qualified institutional placement (QIP), opting instead to fund the deal through bridge financing.
Back home, the Indian market's reaction to Persistent Systems' offer has been markedly different. The Indian IT firm's shares fell over 10% on Monday as investors focused on the execution risks and the strategic challenges associated with integrating the German software company.
According to NDTV Profit Research, one of the biggest concerns is Nagarro's slower growth profile. The company has delivered a three-year revenue CAGR of around 5%, compared with Persistent's 15-18% dollar revenue growth. Profitability is another key concern, as Nagarro operates at EBIT margins of 11-13%, significantly below Persistent's roughly 16%, raising questions about the impact on consolidated margins after the acquisition.
The deal also increases Persistent's exposure to Europe, a market where enterprise IT spending has historically grown slower than in the US. In addition, Nagarro has a larger SAP (Systems, Applications, and Products) and ERP (Enterprise Resource Planning) business.
When it comes to valuations, Persistent trades at around 33x FY27 earnings, and a slower-growing acquisition could put pressure on that premium multiple. Nagarro's own shares had fallen 75-80% from their peak before the takeover announcement, amid slowing revenue growth, weaker cash conversion and governance-related concerns.
The proposed acquisition would create a company with a revenue run rate of nearly $2.9 billion and significantly strengthen Persistent's European presence.
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