Coforge Ltd., a leading mid-tier IT services company, has announced a transformative acquisition of US-based engineering and digital product development firm Encora in an all-stock deal valued at $2.35 billion. The transaction, one of the largest in India’s IT services sector, is expected to significantly enhance Coforge’s capabilities in artificial intelligence-driven engineering and expand its footprint in North America and Latin America.
The acquisition will be executed through a share swap, with Coforge issuing approximately 93.8 million equity shares at Rs 1,815.91 apiece, translating to a non-cash consideration of nearly Rs 17,032 crore. Post-acquisition, Encora shareholders will hold about 21.25 percent of Coforge’s equity.
Macquarie’s Upgrade and Market Reaction
Global brokerage firm Macquarie has upgraded Coforge’s rating from ‘Underperform’ to ‘Outperform’, raising its target price sharply from Rs 1,260 to Rs 2,230. The firm believes that despite potential near-term earnings per share dilution, the acquisition positions Coforge for long-term growth. Encora is projected to generate $600 million in revenue with an adjusted EBITDA margin of around 19% by FY26, after accounting for transaction costs.
Following the announcement, Coforge shares initially rose over 2% to Rs 1,711, snapping a three-session losing streak. However, volatility persisted, with the stock later dipping as investors weighed the scale of the deal and its implications.
Divergent Analyst Views
While Macquarie has taken a bullish stance, other brokerages remain cautious. Elara Capital downgraded Coforge, citing concerns about integration risks and near-term margin pressures. Analysts at Emkay Global highlighted that the deal implies a valuation of 3.9x FY26E revenue and 20.6x FY26E adjusted EBITDA, which is relatively high compared to peers.
Despite these concerns, the acquisition is widely seen as a strategic leap for Coforge, enabling it to address gaps in the North American market and scale up nearshore delivery centers in Latin America.
Strategic Implications
- Geographic Expansion: Strengthens presence in North America and Latin America.
- Service Diversification: Adds AI-led engineering and digital product development capabilities.
- Client Base: Expands access to Encora’s established US client portfolio.
- Scale: Positions Coforge among the most competitive mid-tier IT firms globally.
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Conclusion
Coforge’s acquisition of Encora marks a defining moment in its growth trajectory. While the deal raises questions about valuation and integration challenges, Macquarie’s upgrade underscores confidence in Coforge’s ability to leverage Encora’s strengths for long-term success. Investors will be closely watching execution and financial performance in the coming quarters to gauge the true impact of this landmark transaction.
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