Virtusa Corporation’s (Virtusa) acquisition of India’s largest banking and financial services (BFS) sector IT solutions provider, Polaris Consulting Services Limited (Polaris) is expected to bring in much larger IT outsourcing engagements in its existing and new markets, thus resulting in more business for Sri Lanka, a top Virtusa executive said in Colombo. 

Hence, this could result in further expansion of Virtusa’s operations in Sri Lanka and more employment opportunities to handle the increased volume of outsourcing projects resulting from the business combination. 

The NASDAQ-listed US-headquartered Virtusa signed a definitive agreement to acquire a majority stake in the Bombay Stock Exchange listed Polaris last week for a consideration of US $ 270 million. 

The deal will see Virtusa end up buying up to 74.9 percent stake in Polaris which includes a mandatory offer to buy up to 26 percent from the public shareholders. 

According to Virtusa’s Chairman and CEO, Kris Canekeratne, though they will approach the market as Virtusa-Polaris, leveraging combined strengths in the BFS sector, the two companies will remain as two separately listed entities.  

The deal financed through combination of debt and equity is expected to be completed during Virtusa’s fourth quarter ending March 31, 2016. 

Virtusa will raise US $ 300 million debt equally shared between JPMorgan Chase & Co. and Bank of America at an interest rate of LIBOR plus 2.25 percent to 2.75 percent.    

“By combining we can now address a much larger BFS market by bringing in much larger engagements which we can execute both in India and Sri Lanka based on the skills,” said Canekeratne, who flew down to Colombo soon after making the announcement in India. 

India and Sri Lanka are the first and the second biggest sourcing markets for Virtusa as each market employs at least 7,000 and 2,000 employees respectively, serving some of the biggest BFS sector clients. With Polaris’ 7,000 employees, the combined entity will have 18,000 employees. 

The combined entity will have access to 10 of the world’s twenty biggest banks among which Citigroup will become the largest client of Virtusa-Polaris.  
Pre-acquisition, Citigroup accounted for 45 percent or US $ 140 million of Polaris’s revenue. 

The acquisition will enable Virtusa to provide end-to-end digital banking and IT solutions for the BFS sector in all areas of banking such as consumer and retail banking as well as corporate and investment banking where Polaris is strong at.  “This acquisition helps us create a fully integrated leader in financial services technology and operations. It basically brings together under one umbrella, the consumer banking, corporate banking and investment banking enabling us to provide end-to-end banking services, greatly expanding Virtusa’s addressable market,” Canekeratne further said. 

The acquisition is estimated to result in revenue synergies to the tune of US $ 100 million over the next three fiscal years.  According to Virtusa Sri Lanka operation’s Senior Vice President and General Manager, Madu Ratnayake Sri Lanka’s IT/BPO services export revenue is expected to top US $ 840 million by the end of this year and will close in the targeted US $ 1 billion by the end of 2016. These earnings in 2014 were US $ 628 million.