Persistent Has 94% of Nagarro. Now It Has to Pay for It.

Persistent Systems said on 9 October that it has secured 94.04% of Nagarro, the German digital engineering company, and plans to squeeze out the remaining shareholders. The same evening it filed two more things: ICRA rated ₹5,000 crore of proposed debentures with the rating still on negative watch, and its Chief Delivery Officer resigned. In June the deal was to be funded entirely by debt, with no share sale. Shareholders have now approved up to US$450 million of equity. Read for moat and margin: the business gets wider; the margin and the balance sheet carry the cost first.

What the filings say

Three filings on one day:

How the 94.04% adds up ([UPD]):

• The offer is not settled yet. It "remains subject to the fulfilment of certain outstanding offer conditions", and the tendered shares are paid for only when those are met ([UPD]).
• A squeeze-out is planned. Above 90%, Persistent "plans a squeeze-out of the remaining minority shareholders of Nagarro upon closing. No final decision has been taken yet" ([PR]).
• Closing has moved to the later date. In June, settlement was expected in "Q4 CY2026 / Q1 CY2027" ([BM]). Now it is "by the end of Q1 CY27, subject to only a limited number of outstanding regulatory approvals" ([PR]).

What Persistent is buying

Sources: [IP] for all but Nagarro's EBIT margin, which management gave on the June call ([CALL]).

• Europe is the point. North America is about 81% of Persistent's revenue and Europe about 9%. After the deal ICRA expects 62% and 22% ([ICRA]).
• The price. The offer values Nagarro at about EUR 1.27 billion including its debt: 1.27 times 2025 revenue and 9.19 times adjusted EBITDA ([IP]).
• It is the slower, lower-margin business. Nagarro grew 2.8% in 2025; Persistent grew 17.4% in FY26. ICRA puts Nagarro's operating margin at 12.1% against Persistent's 19.0% on the same measure, and says the blended margin "is likely to moderate to some extent" ([ICRA]).
• The combined company: about US$2.9 billion of revenue and more than 46,000 employees ([BM]).

What changed between June and October

The CEO, Sandeep Kalra, did leave room in June: "Right now, our decision is to go solo." and "Options are open." ([CALL]). The equity approval is an enabling limit, not a decision to issue. But the direction has changed, and the EGM notice says why.

Why the funding changed

The EGM notice of 12 September is the most useful document in this file ([EGM]):

• The bridge loan is short. It "is an interim, 18-month arrangement, and will have to be replaced with long-term financing".
• Nagarro's cash stays in Nagarro for two years. Persistent has committed not to sign a domination and profit-transfer agreement for two years after closing. So it "will have limited access to the cash-flows of Nagarro during that period".
• Nagarro has its own debt. A EUR 350 million revolving facility with about EUR 290 million drawn, to be serviced from Nagarro's own cash flows.
• So Persistent itself must carry the acquisition debt. The financing "is proposed to be raised at the level of the Company".

Put together: for two years, the buyer services the acquisition debt largely from its own profits, not the target's.

How big the debt is against Persistent

• The bridge loan is EUR 1.4 billion for 18 months at EURIBOR plus 1.75 to 2.50 points, backed by a Persistent guarantee of up to EUR 1.54 billion ([BM]).
• The long-term replacement is capped at US$1,250 million ([SEP]). At ₹95.38 to the dollar, the rate in Persistent's own presentation, that is about ₹11,900 crore: roughly 4.3 times FY26 operating profit of about ₹2,800 crore, and more than its net worth (our arithmetic).
• The interest. Management put the rate at about 4.1% to 4.8% ([CALL]). On the full EUR 1.4 billion that would be EUR 57 to 67 million a year, against Nagarro's 2025 adjusted EBITDA of EUR 138.2 million (our arithmetic; the amount actually drawn is not disclosed).
• ICRA's view. The deal "is proposed to be funded entirely through debt" and is "expected to weaken its financial risk profile in the medium term". Debt would stay above ICRA's downgrade trigger of 1.3 times "at least till FY2029" if Persistent buys 100% ([ICRA]). That was written in July, before the equity approval. On 9 October the watch was still in place ([RAT]).

Persistent's own record

Source: [IP]. FY26 includes a one-time hit of about 0.6 points from the new labour codes.

• Q1 FY27: revenue US$452.4 million, up 16.1%; EBIT margin 16.0%; record deal signings of US$1,146.2 million; the 25th quarter of sequential growth in a row ([Q1]).
• Against peers, Q1 FY27 revenue growth in dollars, year on year ([IP], crediting Zinnov):

Persistent is buying from a position of strength: it has been one of the fastest growers in Indian IT, with almost no debt. The deal uses that balance sheet.

The senior exits

Dr Rajesh Gharpure, Chief Delivery Officer, resigned "due to personal reasons" effective 14 October; the company says "There was no material reason for his resignation." ([CDO]). Two other senior managers have left this year, both also for personal reasons: Vijay Verma, EVP of the Serviceline business unit, in January ([VV]), and Cdr Jayant Konde, SVP Administration, in September ([JK]).

The filings give no reason to connect these to Nagarro. But delivery is where two engineering companies of 28,640 and 18,003 people get combined, and the person who ran it leaves before closing. No successor is named in the filing.

Moat and margin

Focus moat: switching costs. Persistent builds and runs software products for its clients; its engineers sit inside the client's product roadmap, and replacing them is slow. The evidence:

• Present. Twenty-five quarters of sequential growth, including a quarter, Q1 FY27, when TCS and Infosys each grew under 3%. Clients paying over US$1 million a year rose from 178 in FY24 to 214 ([IP]).
• What Nagarro adds. More than 1,000 clients, mostly outside Persistent's base: management said fewer than ten customers overlap in any significant way ([CALL]). That is breadth: new clients, new countries, new industries.
• What it doesn't add yet. Depth. A moat built on switching costs strengthens when existing clients buy more. Nagarro's 2.8% growth says its clients were not buying much more last year. Whether Persistent can sell more into them is the whole case, and no synergy numbers have been given.

Verdict on the moat: wider, not yet deeper. The deal does not weaken Persistent's position with its own clients. It adds a second, slower client base that has to be made to behave like the first.

The margin. Three costs arrive before any benefit:

1. A lower-margin business joins. Nagarro's EBIT margin was 10.9% in 2025 against Persistent's 15.6% ([CALL], [IP]).
2. Interest. Persistent paid almost none before; interest cover was 38.5 times ([ICRA]).
3. Amortisation. Management expects about 30% of the goodwill-and-intangibles total to be intangibles, written off over eight years ([CALL]).

Management's answer, from the June call: "we believe we can maintain the margins and better them." It expects the deal to add to earnings per share in the first year, excluding transaction costs ([CALL]). Those are statements of intent. The numbers that would test them, synergies and the final debt, are not yet filed.

Verdict on the margin: down first, on the arithmetic. Reported margin and return on equity should fall when Nagarro is consolidated, before any synergies. How far depends on the debt-equity mix, which is undecided.

MoatSCOREs (Moat Screener, IT services, all first-pass): Tata Elxsi 5.47, KPIT Technologies 5.16, L&T Technology Services 5.12, Persistent Systems 5.11, Hexaware 5.11, Tech Mahindra 5.11, Coforge 5.10, Mphasis 5.10 ([MS]). All are AMBER+; LTIMindtree is not yet scored.

The bear case

• The funding plan changed within ten weeks. No share sale was intended in late June; by early September the board was seeking approval for up to US$450 million of equity.
• The rating agency and the company disagree on debt. Management said 1.9 to 2.5 times; ICRA said 2.0 to 4.5 times.
• Two years without Nagarro's cash. The acquisition debt sits on Persistent while Nagarro's cash flows stay with Nagarro.
• The bridge is an 18-month loan. It must be refinanced whatever the markets look like then.
• The target is slower and less profitable, and Persistent's presentation notes that Nagarro's adjusted profit excludes "independent investigation expenses following past external allegations" ([IP]). The filings read don't say what those were.
• The delivery chief leaves before integration starts.
• Not closed. Some regulatory approvals are still outstanding.

The case for

• The offer worked. 94.04% is well above the 50% needed, and enough to plan a squeeze-out.
• The price is modest on revenue: 1.27 times, for EUR 1 billion of revenue and a European base Persistent lacked.
• Persistent starts with almost no debt, ₹2,704 crore of cash and investments, and five years (FY22 to FY26) of 14% to 35% growth.
• Most of Nagarro's people are already in India (13,145 of 18,003), which should make combining delivery easier.
• The approvals on Persistent's side are done. Both Nagarro boards supported the offer ([IP]); Persistent's members approved the deal financing in August and the fund-raising in October ([EGM], [VOTE]).

What to watch

1. Q2 FY27 results. The earnings call is on 15 October ([Q2C]); listen for the funding mix.
2. The NCD issue: size, tenure and coupon, against the ₹5,000 crore rated.
3. Whether equity is issued, and how much of the US$450 million.
4. ICRA's decision when the watch is resolved.
5. The remaining regulatory approvals and the closing date.
6. Synergy numbers, promised after approvals.
7. Who takes over delivery.

Sources

• [UPD] Persistent, update on the takeover offer for Nagarro, 9 Oct 2026 (NSE)
• [PR] Persistent press release, 9 Oct 2026 (NSE)
• [RAT] ICRA rating letters, 9 Oct 2026 · [ICRA] ICRA rating rationale, 7 Jul 2026 (NSE)
• [CDO] Resignation of the Chief Delivery Officer, 9 Oct 2026 · [JK] SVP Administration, 18 Sep 2026 · [VV] EVP Serviceline BU, 30 Jan 2026 (NSE)
• [BM] Board outcome: Nagarro offer and bridge loan, 27 Jun 2026 · [SEP] Board outcome: long-term debt and equity, 2 Sep 2026 (NSE)
• [CALL] Transcript of the investor call of 28 Jun 2026 (NSE)
• [EGM] Notice of the EGM of 5 Oct 2026 · [VOTE] Scrutiniser's report, 6 Oct 2026 (NSE)
• [IP] Investor presentation, 19 Sep 2026 · [Q1] Q1 FY27 press release · [FS] Q1 FY27 fact sheet (NSE)
• [Q2C] Intimation of the Q2 FY27 earnings call, 8 Oct 2026 (NSE)
• [MS] Moat & Margin, Moat Screener and How MoatSCORE works

Educational research, not investment advice. Every figure above is drawn from Persistent Systems' own filings, read from the primary documents on 10 October 2026; Nagarro's figures are as Persistent and ICRA report them, and rupee conversions, debt multiples and the interest estimate are our arithmetic, labelled as such. MoatSCOREs read live from the Moat Screener on 10 October 2026. No buy/sell recommendations, no price targets, no share prices. Moat & Margin is not a SEBI-registered Research Analyst or Investment Adviser.