Coforge Agrees to Buy US AI Firm Encora in $2.35 Billion Share Deal

Coforge, an IT services giant from India, has disclosed its plan to acquire Encora, a US-based AI and digital engineering company, for a sum of approximately $2.35 billion. The acquisition, which is a share swap, is among the largest mergers within the Indian IT sector in 2023. The deal is worth $2.35 billion, placing it among the largest IT sector acquisitions in India for the year.

Coforge is going to settle the share part which amounts to $1.89 billion through a preferential allotment of shares. Encora’s existing investors will hold about 20% of the enlarged Coforge business through the new shares. To fund the purchase, institutional investors will also be involved in a Qualified Institutional Placement of up to $550 million.

The acquisition is to increase the Coforge’s capabilities significantly in the areas of AI, cloud, data, and product engineering. Encora has a lot to offer in the area of digital engineering, as it is famous for developing cutting-edge AI systems for global clients. The combined strength is that they will be able to reach close to $2 billion in sales by March 2027 fiscal year-end.

Encora had set a target of approximately $600 million in revenue for the current fiscal year, with an adjusted EBITDA margin of about 19%. According to analysts, the merged company could be very profitable, with an earnings increase and an operating margin of around 14% projected once the merger is finalized.

The acquisition also boosts Coforge’s presence in important markets, especially in North America and Europe, where the requirement of AI-guided services has become very fast growing. Company executives are looking forward to the acquisition to strengthen ties with competitors and to usher in a period of growth that is not short term but long term.

Investors were very careful in their approach when talks of the merger first came out in public, which was reflected in the pressure on the share price of Coforge before the official announcement. Some of the investors were worried about the fundraising plans that would be required to support the deal, however, the initial responses have been offset as the terms have been made clear.

Coforge has mentioned that its merger with Encora is part of a comprehensive digital service expansion and a higher value technology areas extraction strategy. This is the company’s plan to have a foothold for future growth in the global market which is fiercely competitive.

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