Persistent's Nagarro deal could be a near-term pain for long-term gain

ET Intelligence group: Persistent Systems' move to acquire Munich headquartered Nagarro SE is expected to serve strategic benefits in the long term including expansion in Europe thereby reducing dependence on the single market of the US. However, the stock of the mid-tier Indian software exporter, which has lost nearly 23% year-to-date amid fears of AI related disruptions, is likely to come under pressure in the short term following the high-stakes acquisition.

The deal, significant in size at an enterprise value (EV) of 1.3 billion (₹13,540 crore) will be funded through fresh debt to be repaid within an estimate tight frame of 18-24 months, stretching the balance sheet of the combined entity. In addition, Nagarro's revenue growth has decelerated over the past two years. It operates at an adjusted operating margin before depreciation and amortisation (EBITDA margin) of around 14-15% compared with 17-18% for Persistent. A crucial task for Persistent, therefore, will be to ramp up top line growth of the combined entity by investing in the operations in a manner not to deplete profitability.

An immediate concern for Persistent's shareholders will be the cost of acquisition. At 81 per share, it is nearly double the three month average share price of Nagarro. Nagarro's stock has halved from its peak of 80.4 in December 2025 following concerns over slowing revenue growth and softness in the European market which contributes over 42% to tis revenue. Its annual revenue growth has slowed down to 5% over a three-year period from 18% over a five-year period. This effectively means Persistent will pay a control premium thereby absorbing the notional loss of Nagarro's investors.


The transaction EV works out to be 1.3 times revenue and nine times EBITDA. The recent mid-market deals in Europe had an EV/revenue between 0.8 and two, and EV/EBITDA between six and 14. Sandeep Kalra, Persistent's CEO said in an investors' call that the valuation may not be comparable given the control focus as Nagarro will be delisted after the acquisition.

Since internal accruals and operating cash flows of the two companies won't be sufficient to repay the loan within two years, Persistent may have to consider refinancing options. Kalra hinted at a possible private equity funding at the asset level, without diluting stake in the parent company. Vinit Teredesai, Persistent's CFO, stated that the current loan facility of 1.4 billion from Barclays will attract an effective interest rate of 4.1-4.8%. The net debt-EBITDA of the combined entity is expected to be 1.9-2.5, which will likely fall below one by FY30.

Nagarro counts Siemens, Luftansa, and SAP among its major clients. With a workforce of 46,000 employees, the combined entity is expected to have $2.9 billion (around ₹27,000 crore) in revenue, making it the seventh largest IT company in India after LTM (erstwhile LTIMindtree), which clocked a revenue of over ₹42,300 crore in FY26. Kalra stated that the combined entity will have over 350 clients having more than $1 million in billing and the customer overlap between the two companies is negligible. Persistent's European share in revenue will expand to around 22% from 9% at present. The deal is likely to conclude by the March 2027 quarter after regulatory approvals.

Of Nagarro's 18,500 employees, 13,500 are in India, which may make post-merger integration easier. However, expanding the business without compromising margins will be a key challenge. Karla expects to maintain the consolidated operating margin, aided by cost synergies.