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Capgemini to acquire IGATE for $4 billion

Last Updated 27 April 2015, 18:44 IST

Paris-headquartered consulting, technology, and outsourcing services company Capgemini, with annual revenues of €10.573 billion, on Monday announced the acquisition of New Jersey-based IGATE in a transaction worth $4.04 billion.

Participating in a teleconference from San Francisco, Capgemini Chairman and CEO Paul Hermelin told Deccan Herald that the move is fully in line with the Capgemini Group’s strategy. “Capgemini is overweight with its thrust on the European market with more than 70 per cent of revenues coming from the region. The North America share is around 20 per cent. With IGATE’s strong hold in the US, Capgemini would quicken its pace to respond to key, fast growing markets of North America,” he said.

Hermelin said the board of directors of Capgemini and IGATE have agreed to the acquisition. “It will soon be realised with the regulatory approvals from the US. The combined entity will strengthen Capgemini’s position as a leader in IT services, outsourcing, and consulting, with estimated combined revenues of €12.5 billion, combined operating margin above 10 per cent, and around 180,000 people serving clients worldwide,” he said. The transaction will help improve the combined earnings per share by 12 per cent in 2016 and 16 per cent in 2017, he said.

Capgemini will offer $48 for every IGATE share as part of the definitive merger agreement, which marks a five per cent increase over IGATE stock’s Friday closing price of $45.85 on the Nasdaq.

While the new organisation would be in place within three months of closing the deal, Capgemini expects the integration to be completed within nine months. The deal will be financed through a combination of Capgemini’s own cash, debt, and an equity portion.

While the Nasdaq-listed IGATE has 2014 revenues over $1.3 billion, an operating margin of 19 per cent, and a global employee base of 33,000, Capgemini has presence in 44 countries with an employee base of 147,016 and a target operating margin rate between 9.5 per cent and 9.8 per cent.

Commenting on the development, Prabhudas Lilladher Senior Research Analyst Shashi Bhushan said Capgemini has been drawing less revenue from North America. “Here IGATE has a solid client base. This will also heat up the competition in the region,” he said.

Win-win deal

“It is very befitting from a strategic point of view and from a business perspective. Also this acquisition will give a strategic fit and a cultural fit.”
Ashok Vemuri, CEO of IGATE

“I have met 20 IGATE managers and there is good chemistry. There is alignment in the clients, and focus on innovation.So there will be easy integration.”
Capgemini Chairman and CEO Paul Hermelin

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(Published 27 April 2015, 08:40 IST)

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