Coforge Acquires Encora: What the $2.35 Billion Deal Means for Investors

Mumbai | Dec 30s

What the deal involves

Coforge said it will acquire 100% of Encora, a Silicon Valley–based digital engineering and data analytics firm, at an enterprise value of about $2.35 billion (around ₹21,100 crore). The transaction will be executed largely through an all-stock issuance, with Coforge issuing shares at ₹1,815 apiece to Encora’s shareholders, including Advent International and Warburg Pincus.

As part of the transaction, Coforge may also raise up to $550 million through a bridge loan or qualified institutional placement to retire Encora’s existing debt. The deal is expected to close in four to six months, subject to regulatory approvals.

Rationale Behind Acquisition
Encora brings capabilities in AI-led product engineering, data platforms and cloud services, areas where large clients are accelerating spending. Management believes the acquisition will help Coforge plug capability gaps in North America, especially in the West and Midwest, and add depth in healthcare and hi-tech verticals.

Encora is projected to report about $600 million in revenue in FY26 with an adjusted EBITDA margin of around 19%. Post-merger, the combined entity is expected to operate at an EBITDA margin of about 14%, with scope for improvement over time as synergies play out.

What it means for earnings

Brokerage estimates suggest the acquisition could lift Coforge’s revenue base materially over the next two years, with management guiding the deal to be EPS-accretive from FY27. Coforge has a track record of integrating acquisitions such as SLK Global and Cigniti, which lends some comfort on execution.

However, this transaction is meaningfully larger than its past deals and is capability-led rather than client-led, making talent retention and cultural alignment key variables.

Valuation and market reaction

The acquisition has raised eyebrows on valuation. At around 3.9x EV/sales, the deal is priced above most recent Indian IT acquisitions. Some analysts have flagged the risk that if growth or margins disappoint, earnings could face pressure over the medium term.

The stock reaction reflects this caution. Coforge shares moved 2% higher initially after the announcement but remains down over 9% over the past week and more than 11% over the past month, as investors digest dilution risks and near-term execution challenges.

PL Capital View

Amnish Aggarwal, Director – Institutional Research at PL Capital, views the acquisition as a long-term strategic move rather than an immediate earnings driver.

“This is a positioning bet to align Coforge with the AI theme. The acquired business is growing at around 10%, so near-term financial accretion is limited. The real payoff will depend on how effectively the company can scale these capabilities and convert them into sustained growth over time.”

Aggarwal added that while the deal strengthens Coforge’s strategic relevance in AI theme, investors should remain cautious in the near term, given the size of the transaction and the premium valuation.

Stay updated on key market developments with PL Capital.