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cash to expand the business and expertise. On our estimates, the acquisition could potentially result in some 1% of initial value accretion to EPAM. We reiterate our Hold recommendation on EPAM, as our 12-month Target Price of $420 implies an ETR of 9%.
What is PolSource? As a Salesforce Platinum Partner, PolSource employs over 350 professionals, with consulting and delivery teams across the Americas and EMEA. Its expertise spans the Salesforce Customer 360 platform (including Sales, Service, Marketing and Commerce), and key Salesforce practices across Heroku, AI, Data & Analytics, Integration (including MuleSoft), Mobile, and CX/UI, according to EPAM. PolSource delivers multi-cloud end-to-end solutions across many key industries, including Consumer Goods, Retail, Manufacturing, Automotive, Technology, Healthcare and Life Sciences. Its clients include Nike, ABInBev, Volvo, GE Appliances, Holiday Inn, KraftHeinz and AMD.
We note that in 2020, EPAM also acquired Ricston Ltd., a leading software integration and connectivity solutions provider, which had a strong partnership with MuleSoft (acquired by Salesforce in 2018).
How big is the deal? Neither the terms of the deal nor PolSource's financials have been disclosed, but we think that PolSource could generate some $120,000-150,000 of annual revenue per specialist. This would imply annual revenues of $42.0-52.5mn, or 1.3-1.5% of our forecast 2021F revenues for EPAM. We note that the potential impact on the 2021 revenues is likely to be lower, since PolSource would likely be consolidated from 2Q21. At an assumed P/S multiple of 2-3x, this revenue stream would imply a total deal value in the range of $84-158mn. Although we admit that the acquisition terms could differ materially from our estimates, since only limited information is available, the deal appears to be larger than EPAM's recent deals.
What could the valuation impact be? EPAM had about $1.4bn of cash and equivalents (including term deposits) at the end of 2020, which means that financing the deal is not an issue. We welcome this use of cash, as it could potentially help accelerate EPAM's growth and cash flow generation. We note that EPAM itself trades at a much higher P/S multiple, of almost 7x. If PolSource is integrated successfully into EPAM, this could initially lead to some 1% value accretion for EPAM, based on our estimates.
Sistema announced February 19 that Megapolis Invest, a JV between Sistema (75.86%) and SberInvest (24.14%), had signed an agreement to acquire an additional 29.64% stake in Elektrozavod from a private investor for R5.8bn.
147 RUSSIA Country Report March 2021 www.intellinews.com