• Technology outsourcing company Virtusa (Nasdaq:VRTU) announced yesterday that it entered into a definitive agreement to purchase an approximately 51.7 percent stake in Indian IT Services provider Polaris Consulting & Services.
• The transaction also includes an unconditional mandatory open offer by Virtusa to purchase up to an additional 26 percent of the outstanding shares of Polaris for approximately $90 million in cash.
• The transaction is subject to regulatory approvals in both India and the United States, and is expected to close during Virtusa’s fourth fiscal quarter, ending March 31, 2016.
• Shares of Virtusa initially dropped more than 10 percent before closing out the week down 6.7 percent from its Monday open.

Buying Into Growth Opportunities

• An Established BFS Player: Polaris is primarily a banking and financial services-focused company working with large banks such as Citi, Bank of Tokyo Mitsubishi and other players. In the last year the company gained 24 new clients, and it has identified key growth areas in the financial services sector going forward that are expected to receive 80 percent of the banking industry’s technology investment.
• At Long Last: There has been much interest around Polaris – in 2013, Business Standard reported that Tech Mahindra was considering it as an acquisition. Previous suiters were also reported to include HCL Technologies and Genpact. The company’s strong vertical expertise pairs well with Virtusa’s own core BFSI focus.
• Size Matters: Together, Virtusa and Polaris will have approximately 18,000 employees and generate $826 million of pro forma revenue for the 12 months ended Sept. 30 2015. On a non-GAAP basis, the transaction is expected to be dilutive to Q4 2016 earnings and slightly dilutive through FY 2017 before becoming accretive in the following period. Virtusa expects to realize more than $100M in revenue synergies over the next three fiscal years.