The $2.3 bn big-ticket acquisition: Will the Encora deal live up to the expectations set by Coforge?

The wave of spending on digital, data, and engineering has seen Indian mid-cap IT companies ride strong demand over the last several quarters, outpacing industry-average growth rates. A few days ago, Coforge announced the biggest acquisition by an Indian IT company—though not a cash transaction. This share-swap deal, coupled with a likely $550 million debt discharge obligation, is expected to take the company’s FY26 revenues to $2.5 billion.

Just days before the announcement, at its Investor Day, Coforge had outlined its strategy and areas of focus for future growth, and the acquisition of California-based AI-led digital engineering firm Encora ticks several of those boxes. The deal brings in 9,200 employees, 11 new $10-million-plus clients, an expanded Americas footprint, and private equity investor Advent International’s presence on the board.

The value Coforge sees in Encora

At the analyst and institutional investor call following the acquisition announcement, Coforge laid out five reasons why Encora would help drive the company’s growth.

“Encora has been one of those very unusual assets that we evaluated, where we had the opportunity to engage deeply with the teams and found that the runways were very significant. The capabilities are cutting-edge, and we believe they are truly cutting-edge,” said Sudhir Singh, CEO of Coforge.

In FY27, the combined entity expects AI-led engineering, data, and cloud services to deliver around $2 billion in revenues, with the AI-led product engineering business alone contributing nearly $1.25 billion—just a shade lower than Coforge’s FY25 revenue of $1.4 billion.

Encora brings strong capabilities in the high-tech and healthcare verticals, along with a footprint in the US Midwest and West—regions where Coforge has been seeking expansion. From a pre-acquisition contribution of 25% from the US West and Midwest, Coforge expects its North America business to jump by around 50% to $1.4 billion post-acquisition.

Geographically, Encora’s operations in Latin America will also help Coforge gain a foothold in a relatively new region through near-shore delivery capabilities. The acquisition will also add to Coforge’s list of $10-million-plus clients, where it sees scope to deepen relationships.

“We will continue to follow the proven acquisition template we have developed over the last eight years, as a result of which every one of our acquisitions, without exception, has been successful. Changes to the organisational and reporting structures will be finalised only once we have effective control post all regulatory approvals,” Singh added.

Financial impact of the acquisition

The Encora acquisition, at an enterprise value of $2.35 billion, consists of an equity value of $1.89 billion paid in the form of equity shares through preferential allotment. This will result in Encora shareholders such as Advent International, Warburg Pincus, and others holding approximately 20–21% on a fully diluted basis post the Cigniti acquisition.

The deal also includes the discharge of a $550 million term loan by Coforge. “A QIP is one of the many funding options being considered solely to retire the debt. If we do decide to proceed with a QIP, it would only happen around closing, which is about six months away. We will also explore other funding options, so there is a possibility that the QIP may never get triggered,” explained Saurabh Goel, CFO of Coforge.

Encora, whose revenue-per-employee metrics and adjusted EBITDA margin of 19% are significantly higher than Coforge’s, reported consolidated revenues of $481 million and $516 million in FY24 and FY25, respectively. In FY26, its revenue is expected to be higher.

At Encora’s current margin profile and with anticipated synergies, Coforge expects to operate at an EBIT margin of around 14% post amortisation of intangibles.

“Historically, when you look at acquisitions such as SLK or Cigniti, the margin accretion on the EBITDA side has been very significant. Here, we are looking at perhaps only a couple of percentage points of improvement. But when two organisations of this scale—$600 million and $1.9 billion—come together, there are meaningful synergies on the G&A and front-end sides. Keeping all this in mind, we believe a 14% EBIT margin is achievable, especially since Encora has cash and no debt,” Goel added.

What market experts make of the deal

On December 29, when markets opened after the announcement, Coforge shares saw early volatility before rebounding. However, the stock has underperformed over the past 12 months, in line with broader pressure on IT stocks.

Analyst commentary has been divided, though many see long-term value potential. Phil Fersht, founder of HFS Research, noted in a social media post that Encora is “not a typical tuck-in acquisition.” Following Coforge’s earlier acquisition of Cigniti, which strengthened its presence across retail, high-tech, and healthcare, this deal signals a clear intent to build integrated, AI-led engineering capabilities to compete directly with Tier-1 services firms rather than merely pursuing incremental growth—though execution will be critical, he cautioned.

Similarly, 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 scales these capabilities and converts them into sustained growth over time,” he said.

Brokerages such as Motilal Oswal said in a note that Coforge’s strong executable order book and resilient client spending bode well for its organic business, while the acquisition expands its presence in the high-tech and healthcare verticals. “We continue to view Coforge as a structurally strong mid-tier player, well-placed to benefit from vendor consolidation, cost take-out deals, and digital transformation,” the brokerage said, reiterating its BUY rating.

However, analysts at ICICI Direct and BOBCAPS are more cautious. ICICI Direct flagged lower-than-anticipated synergies and weaker-than-expected margins as key risks. “While the deal enhances Coforge’s structural strengths, we turn cautious due to (i) potential earnings dilution in FY27 despite management’s accretion commentary, and (ii) the overhang of potential PE stake sales. Given the deal size and leverage/QIP optionality, we also see a risk of multiple compression until integration progress becomes visible,” the brokerage said.

Similarly, Girish Pai, analyst at BOBCAPS, noted that management is assuming only a two-percentage-point improvement in EBITDA margins—materially lower than gains seen in past acquisitions—reflecting Encora’s already strong operating profile. He also pointed out that Advent nominee directors on Coforge’s board could open avenues for business with other Advent portfolio companies. “Beyond risks to estimates, the market is likely to be mindful of dilution in return ratios post-acquisition. The Cigniti deal has already led to a material deterioration in ratios, and we believe this impact could be accentuated following the Encora deal,” the December 28 note said.