Mixed reactions on new entity

With overall revenues of around $1 billion, will the Patni-iGATE combine be able to compete more effectively with the likes of industry leaders such as Tata Consultancy Services, Infosys Technologies and Wipro?

While senior Patni executives feel so, industry watchers are not very convinced. Analysts are also divided on whether or not Patni will be able to retain its top customers once the deal with iGATE goes through.

Explaining the rationale behind the transaction, Mr Jeya Kumar, Chief Executive Officer of the company, said: “If you do not get bigger sooner, you will become smaller, faster. A combined strength of $1 billion in revenues gives a lot of stability to the company (Patni) and will be the perfect platform for our employees, clients and other stakeholders.”

For large IT service contracts, clients first do risk-assessment of vendors before inviting them to the table.

Not only do clients look at size, but also at the kind of domain expertise that the vendor and his employees can bring, said Mr Kumar.

Not only would the Patni-iGATE combine have revenues of $940 million, but it would also have expertise in divergent sectors like financial services, product engineering, insurance etc.

However, Mr Sudin Apte, Chief Executive Officer of advisory firm Offshore Insights, has another view on this subject. He points out that top practice lines at TCS and Infosys – such as ADM (application development and maintenance) or Enterprise Application services – are each well over a billion dollars in size. In contrast, the joint entity's billion dollar business comes from over half a dozen service lines and industry verticals each.

“First, scale from the client's perspective is not overall company size but the magnitude of work that the provider does in their area of interest. So, overall company size may not matter when it comes to clinching the deal,” said Mr Apte.

Given that the Mumbai-based company is being acquired a much smaller player, industry circles are abuzz that the deal with iGATE could raise concerns for some of Patni's top customers and hence lead to some of them switching vendors.

According to Mr Arup Roy, Senior analyst with research firm Gartner , Patni's clients will have to be reassured that the combined entity would be able to adhere to delivery schedules and that there would not be any disruption of services.

“High dependence on commoditised ADM services, barring a few large insurance deals, makes client retention difficult for the merged entity as these services can be shifted to new clients in the event of unhappiness about management change,” Mr Soumitra Chatterjee, analyst with Espirito Santo Securities , said in a research report.

However, Forrester Research has a contrarian view on the same. “The reality is, Application Development & Maintenance transitions are not easy, they have the potential to cause a lot of disruption, and are more likely to impact the client's end customers. In addition, clients' current priorities are focused on new technologies and keeping pace with their industries, and if they are happy with their existing vendor they won't divert attention to switching out the vendor who is maintaining the pieces of their technology that are stable (maintenance and support),” said Mr Jan Erik Aase, Principal Analyst, Forrester Research.

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