Capgemini buys Igate for $4.04 billion. French IT giant Capgemini has acquired Nasdaq listed Igate for $4.04 billion – marking it as one of the biggest merger and acquisitions in the IT services space.
Nasdaq listed Igate has revenues stream over $1.2 billion and an operating margin of 19%. Igate has employee base of 33,000 and will increase Capgemini’s operating margin and earnings per share. This acquisition is in line with Capgemini’s group strategy. North America, the largest and most innovative market for IT services would be by far first market of the group would gain approximately 30% with combined group revenue for 2015.
The new company offer more platform based and intellectual property based solutions to help clients respond to and stay in the forefront of the market. The efforts will be supported by the combination of proven delivery models ITOPS from Igate and Rightshore from Capgemini ensures increased efficiency and competitiveness. The deal is complemented by the additional talent pool.
Igate has an impressive portfolio of major clients from bank and insurance sector complements to that of Capgemini’s position in retail, manufacturing and healthcare. Capgemini earns 20% of its revenues from the US market, the largest outsourcing market. With the acquisition of Igate, the company gets 70% of revenues from the US and also provide access to clients in the US.
Igate CEO Ashok Vemuri says “In Capgemini, we have found a partner that will advance our ability to innovate and build industry solutions that will enhance the value proposition we bring to our clients. In addition, this powerful combination will provide exciting opportunities for our employees to expand their capabilities.”
Several observers in merger and acquisition segment are analyzing the development. Peter Bendor Samuel, CEO of US based Everest Group says “Igate would make an excellent acquisition for Capgemini. They are the right sizes to absorb, not too small so it does not move the dial, but not so big that they will struggle.”
Another observer Phil Fersht, CEO of US based HFS research blogs “Capgemini has worked hard over the last few years to build its presence in India starting from the acquisition of Kanbay back in 2006. Today it has 55,000+ FTEs in India as compared to 30,000+ at Igate. The Igate delivery footprint may be especially interesting to Capgemini who have been trying to grow their presence in Tier-II cities in order to reduce labour costs and Igate may be an accelerant to this effort.” He further added “Capgemini has been trying to grow presence in tier II spoke-centers in India to price competitively, but hasn’t gained the level of scale offshore as its primary competition. It has stated that it wants to grow offshore (not just near shore), so Igate’s footprint will definitely help. Capgemini acquired Kanbay in 2006, which was a successful acquisition and it really got them started in India. So they probably view the Igate acquisition as a similar story,”