Wipro will pay $18.70 a share in cash to acquire all of Infocrossing's outstanding equity which includes options and convertible preference shares. The price is a premium of around 6% to the last traded share price of Infocrossing and about a 13% premium the six month average share price.
Wipro will delist the company via the tender offer route, in a deal expected to close by the fourth quarter of 2007. The offer will be launched by a special purpose vehicle, a 100% subsidiary of Wipro, which will subsequently be merged with WiproÆs US operations. Infocrossing has a widely dispersed shareholding pattern and the founders currently own less than 5% of its equity, on an undiluted basis without taking into account options outstanding and the convertible.
Wipro will fund the all-cash deal via accruals.
For the 12 months ended March 31 2007, Infocrossing had revenues of $232.4 million on which it earned a net profit of $9.3 million. Its Ebitda for the same period was around $42 million. At $600 million, the deal has been transacted at a firm value to sales multiple of 2.6x and an Ebitda multiple of 14.3x.
For the same financial period, Wipro posted revenues of around $3.44 billion. The revenues Wipro adds via the deal are small compared to its own total size, but are a high-quality addition, as a source close to the deal explains. ôWipro adds capabilities, a complementary customer set to which it can cross-sell its own suite of products and gains an onshore US presence".
Wirpo will add five data centres in the American states of Georgia, New Jersey, Arizona, Nebraska and California. Wipro also adds 900 Infocrossing employees to its own employee strength of around 68,000, across information technology and outsourcing.
Wipro gains capabilities in remote management of information technology infrastructure for clients. The Indian company currently has no onshore presence in this specific area in the US and will be able to leverage this acquisition to win customers who prefer not to send their work offshore.
ôThe transaction will create long-term sustainable value for Wipro as it is driven by revenue synergies rather then rationalisation of costs,ö explains a specialist.
Sources close to the deal say that the transaction began as a negotiated deal with Citi representing the buy-side. The deal was finally conducted as a limited auction with Credit Suisse representing the sell-side.
Over the last two years, Wipro has made some smaller acquisitions in the US and Europe. Wipro posted an increase of more than 40% in both revenues and profits for the latest fiscal year compared to the previous year and analysts generally attribute part of this to the company's ability to successfully extract value from its acquisitions.
Wipro shareholders expressed confidence in the Infocrossing move and its shares gained about 1.4% on the Bombay bourses to close at Rs460 ($11.43). The broader market opened on a positive note then nervousness set in and it closed flat at 14,937 - up just 30 points.