Capgemini to buy IGATE for $4 bn to expand in North America

Capgemini will buy IT services company IGATE for $4 billion in a bid to expand its presence in the North American IT outsourcing market.

Headquartered in New Jersey, IGATE posted revenues of $1.3 billion with 19 percent operating margin in 2014. Capgemini, which has more than 145,000 people in over 40 countries, reported global revenues of EUR 10.573 billion in 2014.

North American IT services market

North America is IGATE’s largest market representing 79 percent of revenues in 2014 followed by Europe 14 percent and Asia-Pacific 7 percent.

The bonus for Capgemini is a great presence and foothold in the US market, which has always been a challenge for them as a Europe centric provider. “This boosts their presence and revenue in the US market for global sourcing and gives them a credible offering,” said Partha Iyengar, vice president and head of Research – India, Gartner.

North America will represent 30 percent of the Group’s estimated combined revenues of €12.5bn in 2015. The combination of IGATE and Capgemini increases the Group’s revenues in the North America region by 33 percent to an estimated $4 billion, making North America its first market with approximately 30 percent of the pro-forma combined revenues in 2015. An estimated 50,000 employees will be servicing Capgemini’s North American clients.

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Key challenges

According to Gartner, the biggest hurdle ahead of them is the multi-cultural integration task that lies ahead. Their track record with Kanbay was not the biggest success, and they need to show that they can do much better with this acquisition, which is a much bigger one as well.

Global delivery centers headcount will cross the 100,000 employees mark in 2015 competing on par with the best industry leaders.
Capgemini has made several investments in creating a compelling global delivery offering, starting with the Kanbay acquisition earlier.

Compared to rivals Accenture and IBM, Capgemini was third in this capability, and compared to the global Indian providers were even more behind.

Capgemini will have to move to convince clients that projects are safe and that the Cap acquisition gives IGate clients a much bigger capability and domain expertise in some domains. If they are not successful in doing this, they risk the flight of clients, especially in the US.

IGATE strengthens Capgemini’s key businesses in application and infrastructure services as well as BPO and engineering services. The transaction enriches Capgemini’s portfolio with new clients such as General Electric and Royal Bank of Canada.
This transaction would lead to a group with an estimated combined revenue of €12.5 billion in 2015, an operating margin above 10 percent and around 190,000 employees. The combined Group will pass the 100,000 employees landmark in its Rightshore delivery centers in 2015.

Other main benefits

IGATE, which generates 42 percent of revenues from the financial services sector, brings attractive portfolio of major clients complementary to those of Capgemini.

In addition to its expertise in applications services, IGATE has capabilities in Infrastructure services (3,000 FTEs), Vertical BPO (3,500 FTEs) and Engineering services (3,500 FTEs).

The combination of IGATE and Capgemini provides cross selling revenue synergies of $100-150 million and annual efficiency gains estimated at $75-105 million to be achieved within 3 years.

Paul Hermelin, chairman and CEO of Capgemini, said: “IGATE is a leading company that perfectly fits our strategic ambition. It will give us a new status on the American market, and take further our industrialization journey to offer ever more competitive services to our clients.”

Baburajan K
[email protected]

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