Bengaluru: Responding to concerns over unusual trading in Munich-based IT firm Nagarro’s shares ahead of the deal announcement, Persistent Systems CEO Sandeep Kalra said the company followed “a very strict protocol” and tightly controlled access to the transaction.His comments came after Nagarro chief executive Manas Human told Reuters that he expected Germany’s financial regulator, BaFin, to investigate the sharp rise in Nagarro’s stock before the takeover was announced.Nagarro’s shares surged nearly 20% to €40.4 on Friday, hours before the two companies unveiled the $1.3-billion deal after market closing. On Monday, the stock jumped another 88% to around €76, nearing Persistent’s offer price of €81 a share.“We had a very small team working on the transaction. Between Persistent and our advisory teams, the process was very tightly controlled,” Kalra said. “I have no other comments to make because I have no idea what may or may not have happened elsewhere. I would be very disappointed and shocked if anything had leaked from our side. There’s also no reason for people in India or within our teams to trade because they have zero trading capability in Germany.”Persistent’s all-cash acquisition of Nagarro would create a $2.9-billion digital engineering and AI company employing more than 46,000 people.The market, however, reacted cautiously. Persistent’s shares fell nearly 11% on Monday to a near 15-month low as investors and analysts flagged concerns over the acquisition’s size, integration risks and Nagarro’s lower margins.“That’s something you see with almost every large acquisition. The initial reaction is often not positive because investors don’t necessarily understand the strategic rationale immediately. Their first response is usually: it’s too big, it’s happening in a difficult environment, and so on,” Kalra said.He said the deal represented a rare opportunity and that Persistent may not have been able to acquire an asset of Nagarro’s scale in a stronger market. He also pointed to Persistent’s track record of 24 consecutive quarters of more than 3% sequential growth, saying the transaction would prove accretive over time.Kalra said Persistent had long maintained that any large-scale acquisition would likely be in Europe, where the company remains underrepresented, with only 8.5% of its revenue coming from the region and 82% from the US.“This acquisition changes that dramatically,” he said. The combined entity will derive around 65% of its revenue from the US and 22% from Europe, while also giving Persistent a foothold in markets such as the Middle East, North Africa and Japan.On integration concerns, Kalra stressed that Nagarro is not a purely European company. Around 13,000 of its 18,500 employees are based in India and it already operates with a globally distributed delivery model. “There is already a degree of cultural harmony,” he said.He also dismissed concerns over customer overlap. “There is minimal overlap in customers. Among the top 150 clients of both companies, less than 10 overlap. There are no turf wars here,” he said. “Nagarro has a more than $200-million SAP practice, while we have virtually no SAP business.”Persistent expects to secure regulatory approvals within four to six months. “Even then, we expect businesses to operate independently for 18 to 24 months under an appropriate legal framework,” Kalra said.
