Coforge's $2.35B Encora Buyout: A New AI Services Giant Emerges

A Transformative Move in the IT Sector

IT services major Coforge Ltd. has announced a definitive agreement to acquire US-based Encora, a digital engineering firm, in a landmark deal valued at an enterprise value of approximately $1.35 billion. The announcement, made after market hours on Friday, December 26, 2025, positions the combined entity to become a significant player in the global technology services landscape, with a sharp focus on Artificial Intelligence (AI), cloud, and data services.

This strategic acquisition is expected to propel Coforge into the elite $1.5 billion revenue club, fundamentally reshaping its service offerings and market position. The transaction is structured as an all-stock deal, signaling strong confidence from Encora's existing investors in the long-term growth prospects of the merged company.

Unpacking the Deal Structure

Coforge will acquire Encora from its current owners, prominent private equity firms Advent International and Warburg Pincus, along with other minority shareholders. The transaction will be primarily funded through a preferential allotment of equity shares valued at approximately $1.89 billion.

Upon completion, Encora's shareholders will hold about 20% of the expanded share capital of Coforge. This roll-over of stakes, rather than a cash-out, indicates that the incoming investors are betting on the future synergies and value creation of the combined firm. Additionally, Coforge's board has approved raising up to $150 million, potentially through a Qualified Institutional Placement (QIP), to retire Encora's existing debt and manage other transaction-related expenses.

Strategic Rationale: Building an AI Powerhouse

Sudhir Singh, CEO and Executive Director of Coforge, described the acquisition as a "defining moment" for the company. He emphasized the creation of a new entity with a formidable core in AI-led services. "The new $1.5bn firm, with a $1bn enterprise core of AI-led engineering, data and cloud services, will set the benchmark on making the promise of AI real for enterprises," Singh stated.

The acquisition is designed to significantly enhance Coforge's capabilities. Encora brings deep expertise in AI-native engineering, cloud, and data, which complements Coforge's existing strengths. The deal is expected to immediately scale Coforge's presence in the Hi-Tech and Healthcare verticals, with each projected to operate at an annualized revenue run rate of over $170 million. Furthermore, it strengthens Coforge’s nearshore delivery capabilities by adding over 3,100 professionals in Latin America and expands its client footprint in the US West and Midwest regions.

Financial Implications and Future Projections

The financial outlook for the combined entity appears robust. Encora is projected to achieve revenues of $100 million in fiscal year 2026 with an adjusted EBITDA margin of approximately 19%. Coforge anticipates that the combined business will operate at an EBIT margin of around 14% after accounting for the amortization of intangibles. Importantly, the acquisition is expected to be accretive to earnings per share (EPS) starting in fiscal year 2027.

The integration of Encora is projected to create a business where AI-led product engineering generates over $1.25 billion, cloud services contribute around $100 million, and data engineering adds more than $150 million to the revenue by FY27.

Market Reaction and Analyst Outlook

Coforge's stock is expected to be in sharp focus when markets open on Monday, December 29. Ahead of the announcement, the stock had been under pressure, closing 3.70% lower at Rs 1673.25 on the BSE on Friday. The scrip has declined nearly 13% in 2025 so far.

Despite the recent stock performance, analysts held a bullish view on Coforge prior to the deal. Earlier in December, several brokerage firms had issued 'Buy' ratings. Motilal Oswal set a target price of Rs 3,000, while Axis Direct and ICICI Direct recommended target prices of Rs 2,300 and Rs 2,230, respectively, citing the company's strong competitive position and operational efficiency.

Path to Completion

The transaction is subject to customary closing conditions, including shareholder consent and regulatory approvals from authorities such as the Reserve Bank of India and overseas antitrust bodies. The deal is expected to be finalized within the next four to six months. The successful integration of Encora will be a critical step for Coforge as it aims to solidify its position as a leading global provider of AI-driven technology solutions.