Persistent Systems - Starfish, A Tuck-In Acquisition Ticking All The Boxes: ICICI Securities

ICICI Securities Report

Persistent Systems Ltd. acquired U.S.-based Starfish for a total consideration of $20.7 million, including $15.4 million upfront cash payment. The remaining $5.1 million will be paid as earnouts over the next two years based on achievement of certain performance threshold and $0.2 million as payment to key employees contingent on continuity.

Enterprise value/sales for the acquisition is at 2.5 times. Despite being a tuck-in acquisition, this has multi-fold benefits for Persistent Systems:

1. augmentation in AI driven portfolio,

2. augmentation in enterprise communication (BPO business platform),

3. access to fortune 500 clients for cross selling and

4. margin strengthening.

We retain Add rating on Persistent Systems at target price: Rs 4,720 based on-

1. industry leading organic growth,

2. selected vertical focus and

3. software engineering capabilities.

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