Coforge is in advanced negotiations to acquire Encora, a prominent digital engineering and modernization services firm, in a transaction now valued at $2 billion according to sources. The deal represents a significant increase from earlier reports that pegged the valuation at over $1 billion, highlighting the strategic importance of this potential acquisition.

Updated Deal Parameters

The acquisition discussions have progressed with a substantially higher valuation for Encora, which is currently owned by private equity firm Advent International. The target company provides clients with tailored innovation software through services across AI, data and cloud technologies.

Board Meeting and Fund Raising Plans

Coforge's board is scheduled to meet today to consider a fund raising proposal, followed by an analyst call this evening. This timing suggests the company is preparing to secure the necessary capital for the potential acquisition.

Previous Acquisition Experience

Coforge has demonstrated its acquisition capabilities through its recent purchase of Cigniti Technologies in 2024, valued at over ₹2,000.00 crore. The company successfully raised funds through a Qualified Institutional Placement (QIP) process to complete that transaction, issuing shares at ₹4,600.00 per share, which adjusts to ₹920.00 per share after the 1:5 stock split.

Market Response

Shares of Coforge have declined 7% over the last two trading sessions since the board meeting announcement, reflecting market uncertainty around the potential large-scale acquisition and associated fund raising requirements. The stock currently trades significantly higher than the previous QIP issue price levels.

This potential acquisition would represent one of the larger deals in the Indian IT services sector, positioning Coforge to significantly enhance its digital transformation and engineering capabilities in high-demand areas such as artificial intelligence, data analytics, and cloud services.

Coforge Ltd. has received board approval to raise up to $550 million through a qualified institutional placement (QIP), following the crucial board meeting that concluded recently. The IT services company had earlier announced this board meeting for Friday, December 26, which generated significant market attention and impacted the stock's performance with shares declining 7% over two trading sessions leading up to the meeting.

Fund Raising Approval Details

The board has approved the fundraising proposal that was under consideration, with the company now authorized to proceed with raising up to $550 million through the QIP route. This development comes after the company scheduled both the board meeting and an analyst meet, indicating the significance of the proposed fund raising initiative.

Previous Fund Raising History

This marks the second major fund raising by Coforge within the last 18 months. The company previously raised ₹2,240.00 crore through a qualified institutional placement to eligible institutional buyers, specifically to fund the acquisition of Cigniti Technologies.

Note: The previous issue price is not adjusted for the stock split conducted earlier this year.

Growth Strategy and Financial Position

Coforge currently maintains negligible cash reserves on its balance sheet while pursuing ambitious growth targets. The company is working toward achieving a $2 billion revenue run-rate over the next few quarters. During its previous analyst meeting, management assured stakeholders that no additional data center investments would be included in the current offering.

Market Performance and Investor Sentiment

The stock had experienced pressure ahead of the board meeting, with investor concerns centered around potential equity dilution. Market sentiment had turned cautious since the initial announcement, reflecting broader concerns about the company's financial strategy.

The approval of the $550 million fund raise provides clarity on the company's capital allocation strategy and funding requirements for its growth plans. The funds raised through this QIP will likely support the company's expansion initiatives and help achieve its targeted revenue run-rate goals.