(Image Source: The Economic Times)
Coforge announced its intention to acquire Encora, a Silicon Valley digital engineering company, for $2.35 billion in an all-stock deal, effective as of December 26, 2025. The transaction marks India’s largest IT services acquisition and signals a strategic pivot. Rather than relying on organic growth, Coforge is making a significant bet on integration to move upmarket and compete directly with larger global services firms in high-value AI and engineering work.
Encora was valued at $1.5 billion when Advent International took full control in 2021. Coforge is paying a 57 percent premium to that valuation, betting that AI-driven digital engineering will command higher fees and attract premium clients willing to pay for specialized expertise rather than commodity services.
Deal Structure and How It Works
The All-Stock Transaction
Coforge will issue shares at Rs 1,815 per share to Encora’s shareholders. After the deal closes, Encora shareholders will own roughly 20 percent of the combined company. This means existing Coforge shareholders face immediate 20 percent dilution. The board approved raising up to $550 million through a bridge loan or qualified institutional placement to cover Encora’s debt and deal costs.
The all-stock structure is interesting. It signals that both sides believe Coforge’s stock will outperform. Encora’s private equity owners are betting on Coforge’s ability to execute rather than taking cash now. This aligns interests but also means Encora’s owners will live with the consequences if integration goes wrong and the stock falls.
What Encora Brings to the Table
Geographic Footprint and Engineering Capacity
Encora operates roughly 3,100 engineers spread across Latin America, the US, and other regions. For Coforge, this solves a real problem. Coforge had been heavily dependent on India-based delivery. Through Encora, Coforge gains immediate nearshore capacity serving US clients from Mexico and other LATAM countries, where labor costs are lower than onshore but higher than in India.
Encora also fills geographic gaps. Its presence in the US West and Midwest complements Coforge’s historical strength in the Northeast and Southeast. This matters because US-based clients increasingly want delivery from multiple geographic centers to manage risk and optimize costs across regions.
AI and Engineering Capabilities
Encora has built an agentic AI platform called AIVA and maintains partnerships with AWS, Microsoft, Google, and Snowflake. The firm focuses on digital-native sectors like hi-tech and healthcare. This is different from Coforge’s historical strength in IT services and infrastructure work. The combination gives Coforge credibility in AI-driven modernization, a service category where enterprises are spending heavily despite broader cost pressure.
Revenue and What the Numbers Look Like
Combined Entity Size and Profitability
Encora is projected to generate $600 million in revenue for FY26 with adjusted EBITDA margins of 19 percent. Coforge’s current revenue sits around $1.9 billion. The combined business will reach approximately $2.5 billion in revenue, moving Coforge into a more competitive tier against mid-market players like HCLTech and Persistent Systems.
However, the margin story gets complicated. Coforge projects the combined business will operate at EBIT margins of 14 percent after accounting for amortization of acquisition intangibles. That’s a hit from Encora’s current 19 percent, reflecting integration costs and the write-down of goodwill over time.
The company expects the deal to be earnings-accretive starting FY27, not FY26. This means 2026 will be a year of margin compression as Coforge integrates the business and realizes savings.
The Real Risk: Execution
Why Integration Matters More Than Valuation
Coforge made a smaller acquisition of Cigniti in 2024 valued over Rs 2,000 crore. Encora is roughly 3 times larger and operates in a completely different service line with different client bases, compensation structures, and engineering cultures. The integration challenge is exponentially higher.
Coforge must accomplish several things simultaneously:
– Cross-sell Coforge’s services to Encora’s Fortune 1000 clients
– Introduce Encora’s higher-margin AI services to Coforge’s installed client base
– Align salary structures between US-based and India-based engineers without losing talent
– Maintain Encora’s client relationships while consolidating back-office functions
– Realize cost savings without disrupting service delivery
Any misstep in these areas could slow revenue growth or erode margins, making the deal value destructive rather than creative.
The Market Context
Coforge’s stock fell 13 percent through 2025 before this announcement, suggesting investors already had concerns about growth or execution. The market is watching whether this acquisition fixes those concerns or compounds them. The deal shows management believes AI engineering services remain a growth market despite broader IT budget pressure. Whether they can prove it through integration execution will determine shareholder returns over the next two to three years.
Regulatory approvals are pending, with closing expected in four to six months. Until then, both companies operate independently while planning the integration.
