Virtusa Expands Digital Engineering Capabilities with the Acquisition of eTouch

Posted On 16 Apr 2018
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Kris-Canekeratne,-Chairman-and-CEO-of-Virtusa

eTouch brings innovative Digital Solutions & Services and Fremont CA-based Digital Innovation Center

Southborough, MA – Virtusa Corporation (NASDAQ GS: VRTU), a global provider of digital engineering and IT outsourcing services that accelerate business outcomes for its clients, announced that it has entered into an equity purchase agreement to acquire all of the outstanding shares of eTouch Systems Corp. (“eTouch US”) and eTouch Systems Pvt. Ltd (“eTouch India,” together with eTouch US, “eTouch”). The Company completed the acquisition recently and expects to complete the acquisition of eTouch India in the next several days, pending the final settlement of eTouch India shares. Headquartered in Fremont, CA, eTouch provides cutting edge digital engineering, digital marketing, cloud, analytics, and data security solutions, primarily to tech companies.

The acquisition of eTouch expands Virtusa’s digital engineering expertise and broadens its digital service offerings. It also establishes a strong innovation hub in the heart of Silicon Valley and allows Virtusa to better address the needs of both fast-growing tech companies and global enterprises. Further, the acquisition expands Virtusa’s team of highly-skilled digital engineers, deepens its tech domain expertise, and adds marquee names to its client portfolio, including a leading Silicon Valley-based multinational technology and Internet company to its top-ten list of clients.

Kris Canekeratne, Chairman and CEO of Virtusa, stated, “Digital Transformation is increasingly a cost of doing business, and digital engineering is the critical competency to realize the full business value of digital-first investments.  The eTouch acquisition solidifies our growing leadership in the digital space, and will have a positive impact on both Virtusa and eTouch clients.  There is strong alignment between the two firms, from our shared approach to digital engineering and innovation to how we address client engagement, talent development and a strong engineering-first culture.  The addition of eTouch’s Fremont, CA Digital Innovation Center to Virtusa’s already global footprint significantly strengthens our capacity to guide and serve Valley, national and multi-national clients around the world.  We are thrilled to have e-Touch’s team members and clients join us on our journey to becoming the leading digital engineering firm in the world.”

Ani Gadre, Founder and CEO of eTouch, stated, “We are pleased to join the Virtusa team and believe this is a tremendous opportunity to deliver on eTouch’s vision of offering digital engineering services on a global scale. Virtusa and eTouch share a strong engineering and innovation culture, as well as an unwavering focus on our clients’ success.  I look forward to teaming with Virtusa on a smooth integration of our two companies.”

Financial Overview of Transaction

Under the terms of the purchase agreement, Virtusa will acquire all of the outstanding shares of eTouch for approximately $140.0 million in cash, subject to certain adjustments, with up to an additional $15.0 million set aside for retention bonuses to be paid to eTouch management in equal installments on the first and second anniversary of the transaction. The purchase price will be paid in three tranches with $80.0 million paid at closing, $42.5 million on the 12-month anniversary of the close of the transaction, and $17.5 million on the 18-month anniversary of the close of the transaction, subject in each case, to certain adjustments. Virtusa will use $70.0 million of a delayed draw term-loan from its existing credit facility and $10.0 million of cash on hand to make the payments due at closing.

For the fiscal fourth quarter ending March 31, 2018, Virtusa management currently expects eTouch to contribute revenue of approximately $5.0 million and to be approximately ($0.04) dilutive to Virtusa’s earnings per share on a U.S. GAAP basis, inclusive of approximately $1.2 million of acquisition related charges net of $0.4 million of tax adjustments, and neutral to earnings per share on a Non-GAAP basis. Virtusa expects the eTouch acquisition to be dilutive to GAAP earnings per share for the fiscal year ending March 31, 2019 and accretive to non- GAAP earnings per share for the fiscal year ending March 31, 2019.

Citi acted as exclusive financial advisor to eTouch on the transaction.

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