French IT services company Atos is boosting its North American operations with a $3.4 billion cash deal to buy Michigan-based IT services provider Syntel Inc.
Atos, which provides IT services to sectors ranging from aerospace to retail, said the deal to buy Syntel will strengthen its activities in banking, finance and insurance and allow it to provide complete IT solutions to its U.S. customers.
‘Growth, profitability’
“[The deal] will significantly enhance [the business and platform solutions division’s] growth and profitability profile through an extended digital services offering, cutting-edge India-based delivery platforms, as well as revenue and cost synergies,” Atos Chief Executive Thierry Breton said in a statement. The acquisition of Syntel, a 38-year-old company with 23,000 employees, comes after last year’s unsuccessful attempt by Atos to buy Gemalto.
Syntel provides technology and IT services utilising a network of software development centres in India, where it employs about 18,000 people.
Atos will pay $41 per share, a premium of 4.78% to Syntel’s closing price of $39.13 on Friday. Including net debt, the transaction is valued at about $3.57 billion.
’Double-digit EPS’
Atos said it expects the deal to provide double digit earnings per share (EPS) growth from 2019, with Syntel bringing the group about $1 billion in revenue and an operating margin of about 24%.
Analysts at Invest Securities said the price was “not excessive”, but a Paris-based trader pointed to the funding of the deal as a cause for concern. “They are financing it through debt, which is becoming a source of concern among investors with rising interest rates and a high level of debt among companies,” he said.
Analysts and traders also pointed to the company’s first half results as a source of concern.
“Atos H1 release suggests to us a deteriorating underlying picture, particularly in North America, against hopes that by this time its organic growth trajectory should have been improving,” said Ameet Patel, senior analyst for Northern Trust Capital Markets.
To a query on plans to integrate Syntel’s workforce with Atos’s, a company spokesperson for the French firm said, “We look forward to welcoming the 23,000 Syntel employees, inclusive of 18,000 staff based in India. We believe there is a tremendous cultural fit between the two companies. During the integration of Syntel, one of our priorities will be to retain most talented employees.Based on the track record we have with our previous acquisitions, we are confident to succeed.”
(With inputs from Jay Shankar in Bengaluru)
