The current talks on stake sale by its promoters at India's seventh largest information technology services company, Patni Computer Systems, seem to be in the final stages. Whichever way the deal swings, analysts feel the company will lose some business.
If the Carlyle and Advent private equity (PE) consortium win the deal, Patni will see a loss of 15-20 per cent in revenue. If the iGate and Apax combo bags the deal, the revenue loss will be at least 25 per cent, said a study by Offshore Insights.
"We spoke to at least 22-23 clients and they range from $50 million revenue to the $1-2 million segment and we gave them four scenarios. Nearly 95 per cent of clients are substantially concerned about the impact of Patni's sell-out and how it will impact their work.
Our interactions with these clients indicate their primary concern is not about who buys Patni, but how the new buyer treats the company and what happens to their offshore teams and projects that Patni is working on," said Sudhin Apte, Principal Analyst and CEO, Offshore Insights.
The four scenarios that Offshore Insights gave were - a PE consortium buying the company, a mid-sized IT services firm backed by a PE winning the bid, a wild-card, last-minute entry, and a scenario of no deal happening. As of September 30, Patni had 282 active clients.
The top five contribute 35.6 per cent to the revenue and 48.5 per cent comes from the top 10 clients. The large clients that Patni have include players like GE and insurance majors. They are, clearly, not comfortable with a PE consortium buying the company.
"These are two or three clients but they are very big for Patni. The reasons are they think a PE-backed company might not give them the same importance. More important, they feel the PE portfolio might clash with them," added Apte.
For some clients, the iGate and Apax International combination winning the bidding process also seems to be a concern. "Thirty per cent of respondents were not even aware of iGate and many others had very limited information about that company. They expressed a good possibility of shifting the work from Patni to an alternative offshore provider," said Apte.
Besides, in case a public company (such as iGate) buys Patni, another listed company, they will need to undergo a long process, including open offer, de-listing and so on.
During this extended takeover phase, which may run as long as two years, Patni will witness client loss, higher attrition, and possible pause to its several investment initiatives such as intellectual property creation and global delivery base outside India.
More, almost 75 per cent of clients are in a wait-and-watch mode. "Patni's small clients care a little less. They feel, given they don't do any strategic work with Patni, shifting vendor is easy task for them.
Please note, Patni has more than 100 clients in the 'less than $1 million revenue per year' category and another 100 clients in 'the $1 million to $5 million' revenue bracket," said the survey.
What is clearly a case of concern for Patni, said Apte, is that "every large client of Patni that we spoke to has already initiated an internal process to document work with Patni and take a stock of all existing projects.
Patni has a high concentration of its business in the top 10 accounts (nearly 40 per cent of its revenue). Even one or two clients in this category parting ways or diluting work will substantially impact its top line." Patni's stock price closed today at Rs 479.6 per share, down 2.2 per cent from the previous close.
