French IT firm Atos SE announced plans to acquire the US IT services provider Syntel Inc. (SYNT) for $3.4 billion. With the inclusion of debt, the transaction value comes to over $3.5 billion. The deal, which anticipates closure by the end of 2018, is expected to be accretive to EPS in double digits by next year.
Syntel’s strength in key IT areas such as cloud computing, automation, social media, and analytics was one of the main reasons for the acquisition. Atos, which saw its revenues drop in North America earlier this year, is looking to strengthen its position in the region through this combination. Atos expects a revenue contribution of $1 billion from Syntel.
Atos expects to benefit from Syntel’s association with leading companies in the financial, healthcare and retail sectors such as American Express and FedEx, which are Syntel’s top customers. Atos, which has a market value of $15.4 billion, is much larger than Syntel. The French company has been looking for strategic partnerships to broaden its geographic presence and increase the size of its product portfolio.
The acquisition will prove to be beneficial to both Atos and Syntel as both firms provide services to the same industries and both have a presence in several European and North American markets. However, the deal is expected to be financed through debt, and this is a reason for concern among investors.
Syntel will report its second-quarter results by the end of this week, and the company expects revenues of close to $250 million and diluted EPS of $0.49.