Midcap information technology firm Coforge said it will acquire a 100 percent stake in Cigniti Technologies within a year. The company will begin complete integration of operations after taking over 51 percent of the company, Chief Executive Officer Sudhir Singh told Moneycontrol.
The Noida-headquartered firm said that the Cigniti acquisition will help it grow into a $2 billion firm by financial year 2026-27, from the current $1.12 billion (Rs 9,197 crore). Additionally, the acquisition will help it improve its operating margins by 150-200 basis points to around 20 percent by FY27.
Coforge outlined its roadmap for acquiring Cignity after declaring its fourth quarter earnings ending March 31, 2024. The company would have to shell out close to Rs 2,000 crore for the acquisition.
By August, Coforge plans to secure a controlling interest of at least 51 percent through a Qualified Institutional Placement (QIP) process. This would mean Coforge will control the board by then and would pave the way for subsequent stages of the acquisition.
"Once the NCLAT (National Company Law Appellate Tribunal) approval is received, we will proceed with the share swap and then acquire 100% of the firm. The 100 percent piece should hopefully play out within a year," Singh told Moneycontrol.
Coforge has already initiated an open offer, slated to remain active for three months, at the end of which the company hopes to secure a majority control. "We will at that point in time, begin complete integration of operations," Singh explained.
The integration strategy goes beyond mere consolidation of services. Coforge will complement its existing service lines with Signiti's expertise in non-functional testing areas such as performance, security, and User Interface/User Experience testing. Moreover, the merger is anticipated to create three new industry verticals for Coforge - Retail, Healthcare, and Hi-Tech.
Singh further said the acquisition will “absolutely” complement its European presence as currently operations are very UK-centric, and North American presence is east coast-centric. “So here we found an asset that was helping us build three new verticals, and cover the exact geography across a large market that was relatively unexploited," Singh said. “It is massively synergistic from an operations perspective.”
Coforge expects the merged firm’s retail vertical to operate at close to $100 million per annum, while the Hi-Tech and Healthcare verticals to operate at around $50 million per annum immediately post-merger.
Top of Form
Coforge currently derives only 48% of its global revenues from its North American operations. Rapid expansion in North America has been a key objective for Coforge. The acquisition of Cigniti will expand Coforge’ s North America revenue by around 33 percent, the company said.
The company will also add 28 new Fortune 500 companies across these regions with this acquisition.
The AI Synergy
“One of the reasons for acquiring Cignity is also because using security expertise, we are planning to create a horizontal service line for assurance services for the AI space, which we think is a massive growth space in the coming years,” Singh said.
Singh said that the company is committed to its plan of investing at least 40 percent of its incremental investment in the AI space.
The company will build a horizontal “AI Assurance” offering, including modules for data interrogation, bias detection, etc., for AI projects. The company emphasised that the successful development of this offering will be driven by its vast AI experience and offerings from its AI Centre of Excellence, combined with the capabilities of Cigniti's BlueSwan platform.
BlueSwan started in 2016 as an automation platform and since evolved into an AI led platform with a suite of eight offerings.
Coforge said higher AI adoption is expected to increase the need for assurance as new complexities and opportunities arise in areas like model validation, model performance testing, core algorithms, enterprise Large Language Models, and output validations to reduce AI hallucinations.
Moneycontrol Pro: Coforge Q4: A large acquisition overshadows a decent quarter
The revenue for the quarter was at Rs 2,358.5 crore, up 8.6 percent year-on-year, the filing showed. For the full year, the revenue jumped 14.5 percent to Rs 9,179 crore on a YoY basis. EBITDA margin was at 19 percent, sequentially higher by 102 bps.
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