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Motilal Oswal Report
Persistent Systems Ltd. is in focus after announcing the acquisition of Nagarro in a €1.27 billion (~$1.37 billion) all-cash deal, a move that Motilal Oswal believes could significantly strengthen the company's global positioning while opening up new growth avenues.
The brokerage reiterated its‘Buy' rating on the stock with a target price of Rs 6,200, implying an upside of around 28% from current levels.
Transaction details:
Persistent will acquire 100% of Nagarro through an all-cash offer of €81/share, implying an enterprise value of €1.27b (140% premium to the undisturbed share price and 94% premium to the three-month VWAP). The company has already secured a 21% stake, with Nagarro's management also intending to tender its shares.
The offer requires a minimum acceptance of 50% plus one share and is expected to close in Q4 CY26/early Q1 CY27, subject to regulatory approvals.
The acquisition will be funded through a €1.4 billion committed bridge facility from Barclays (~4.1-4.8% borrowing cost), with no equity dilution or QIP. Management expects the deal to be cash EPS accretive from Year 1, while reported EPS should also remain accretive, excluding one-time transaction costs.
Valuation and outlook
The brokerage believes the acquisition is strategically positive, addressing Persistent's long-standing objective of building scale in Europe, broadening its vertical mix, and creating cross-sell opportunities with limited customer overlap.
The acquisition also appears priced at 9.1x EV/Ebitda, which we believe is a reasonable valuation for a business of Nagarro's scale.
However, it remains to be seen how much value Persistent can extract from the acquisition through integration and crossselling.
The brokerage remains relatively more cautious on the addition of ERP, a more mature and competitive service line than Persistent's core digital engineering business. While management expects margins to remain broadly stable, the brokerage awaits greater clarity on integration, cost synergies, and the path toward margin convergence, given Nagarro's lower profitability.
Execution over the next few quarters will remain the key monitorable.
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