Coforge Strengthens AI Capabilities through Encora Acquisition
ET Intelligence Group reports that Coforge’s strategic acquisition of Encora, based in California, is poised to bolster its artificial intelligence (AI) prowess in the healthcare and high-tech sectors, while concurrently enhancing its foothold in the U.S. market over the long term.
The forthcoming integration of both organizations presents significant hurdles, predominantly centered on talent retention and the identification of synergies.
Coforge has exhibited robust business momentum in recent years, leveraging both organic and inorganic growth strategies. Its revenue has surged at a compounded annual growth rate (CAGR) of 27%, with impressive increases of nearly 24% recorded over the past three and five years, respectively.
This acquisition will empower Coforge to deliver AI-driven IT engineering, data, and cloud solutions, expected to serve as pivotal growth drivers for software service providers. Encora’s acquisition emerges as a strategic maneuver for Coforge in its quest for future readiness.
Encora’s revenue trajectory is anticipated to ascend to a three-year CAGR of 13%, reaching $600 billion (approximately ₹5,340 crore) by FY26.
Meanwhile, Coforge reported revenues of ₹7,674 crore in the first half of FY26, suggesting an annualized top line of ₹15,348 crore.
Collectively, the combined entity may achieve an estimated revenue of ₹20,688 crore in FY26, potentially positioning it as India’s seventh-largest software exporter, surpassing Mphasis.
Financial Implications of the Acquisition
The acquisition delineates Encora’s enterprise value (EV) at four times its estimated FY26 revenue, a notable premium compared to the typical EV/sales ratio of 1.5-3 within the sector.
This premium underscores the significant growth potential anticipated from the amalgamated entity, which is projected to generate $2.5 billion in revenue by FY27, juxtaposed against $1.4 billion reported by Coforge in FY25.
Acquisition Details
- Coforge announced a plan to purchase a 100% stake in Encora for $2.35 billion from existing shareholders, Advent International and Warburg Pincus.
- This transaction marks the largest acquisition in the Indian IT services sector by deal value, eclipsing previous significant transactions such as HCL Technologies’ acquisition of select IBM products for $1.8 billion in December 2018, and Wipro’s $1.45 billion purchase of Capco in March 2021.
- Coforge intends to pay $1.89 billion through a share swap, thereby granting over a 21% stake to Encora’s investors. The remaining amount will be financed either through an institutional placement or a loan to service Encora’s existing debt.
- The transaction is anticipated to be earnings-accretive, given that Encora operates a profitable business model.
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