The mid-cap IT services firm is betting that its biggest M&A move ever will accelerate progress toward a $5 billion revenue target, even as it tests its ability to integrate a company of comparable scale
Persistent Systems has spent nearly three decades building its growth strategy around small, targeted acquisitions. With its proposed €1 billion purchase of Germany’s Nagarro, the company is attempting something considerably more ambitious, and considerably riskier.
A Departure From the Usual Playbook
Persistent is no stranger to mergers and acquisitions, having completed nearly 30 largely tuck-in deals over the years aimed at strengthening specific technical capabilities. But the scale of those transactions has typically been modest, ranging between $20 million and $90 million. Its largest acquisition before Nagarro was New Jersey-based Data Glove, acquired for $90.5 million. The Nagarro deal dwarfs that figure by more than tenfold, marking a genuine strategic pivot for the company.
Why Persistent Is Confident
Company management is confident that the integration will go smoothly, based on cultural similarities between Persistent and Nagarro, both of which have large operations in India and will therefore lessen the cultural and operational issues usually seen in large across border acquisitions.
Strengthening the Europe Business
The acquisition of Nagarro is a strategic move to strengthen Persistent’s European business, where the organization would ultimately like to grow at enough scale to compete with the larger global IT Services companies. The management of Persistent has positioned this deal as transformational and may significantly accelerate their achievement of $5 billion in revenue, as stated publicly.
The Real Test Ahead
Even with the positive outlook from management, this acquisition represents unknown territory for a company that has not completed any other acquisitions to date, outside of smaller, less-risky acquisitions. The level of operational complexity associated with a business of Nagarro’s size will significantly exceed that of a tuck-in acquisition, and investors will be focused on successful integration over the next few months to see if this will prove to be a successful acquisition for Persistent.
