M & A CritiqueCapgemini has acquired IGATE, a prominent US-listed technology, and services company headquartered in New Jersey. the transaction amounted to $4.04 billion. The merger agreement has been approved unanimously by both Capgemini’s and IGATE’s Board of Directors. The transaction has also been approved by the written consent of the majority shareholders of IGATE’s .
The combined entity has strengthened Capgemini’s position as a leading company in IT services, outsourcing and consulting. with an estimated combined revenue of $12.5 billion. The new company will offer more platform-based and intellectual property-based solutions to its clients. Capgemini wants to become one of the 10 largest solution providers in the united States by leveraging its digital initiatives.
ABOUT CAPGEMINI:
Capgemini is a French multinational management consulting corporation headquartered in Paris, France. Present in over 40 countries with almost 145,000 workforce, the Group helps its clients transform in order to improve their performance and competitive positioning.
Services:
Capgemini offers a host of integrated services that combine top-of-the-range technology with deep sector expertise and a strong command in four key businesses.
Consulting Services help businesses and organizations to identify, build and carry through transformation programmes that will improve growth and sharpen their competitive edge on a long-term basis.
Technology Services design, develop and implement a wide range of technology projects that involve complex systems integration and IT application development.
Outsourcing Services manage, wholly or partially, over several years, IT systems for applications and infrastructures of a client (or a group of clients), and their associated business processes such as Business Process Outsourcing.
Local Professional Services delivers professional technology services to suit local requirements for infrastructure, applications, engineering, testing, and operations.
Acquisition trends of Capgemini:
Last five acquisitions of Capgemini
| Years | Target company |
| 2014 | Strategic Systems & Product Corp. |
| 2012 | DTWO Solutions |
| 2011 | Vengroff Williams & Associates |
| 2011 | BI Consulting Group |
| 2011 | AIVE Group |
Acquisition trend of Capgemini started in 1973 when it acquired SESI, a data input, and processing company. Till date, the company has made more than 27 acquisitions excluding IGATE.
About IGATE:
IGATE, headquartered in Bridgewater, New Jersey provides integrated technology and operations-based solutions. It provides solutions to clients’ business challenges by leveraging its technology and process capabilities. IGATE offers applications and platforms that provide the necessary competitive and innovation edge to clients across industries, through a combination of speed, agility, and imagination. IGATE is listed on NASDAQ.
In 2011, it acquired India-based Patni Computers for $1 billion. Patni then was three times the size of IGATE and the company had borrowed $480 million to complete the transaction and delist Patni from Indian bourses. IGATE has been on the block since late last year when Apax Partners converted its debt into a nearly 30% equity stake and told the US Securities and Exchange Commission that it wanted to have the option to sell all its shares. Co-chairman Sunil Wadhwani and Ashok Trivedi are the next biggest shareholders, owning nearly 13% stake each.
The Deal:
Capgemini has acquired IGATE for a cash consideration of $48 per share, a 4.7 percent premium to the stock’s closing price on April 24, 2015. The transaction will amount to $4.0 billion. This valuation is more than three times IGATE’s 2014 revenue of $1.3 billion.
The contemplated transaction will consist in a one-step cash merger between IGATE Corporation and a subsidiary of Capgemini North America Inc.
This transaction will be financed through a combination of:
- Own cash
- Equity portion translating into a dilution not to exceed 6% of Capgemini share capital
- Straight debt for the remaining portion.
The deal will see the exit of IGATE co-founders Ashok Trivedi and Sunil Wadhwani, along with private equity firm Apax Partners. It will also bolster the offshore presence of the European info-tech services giant, giving it access to a larger global delivery network and strong presence in the US financial sector.
Fact n Figure:
Breakdown of Turnover
By Sector
Sources:- Company data, hu research
By geography
Sources:- Company data, hu research
Financials:
Million Euro’s
| Particulars | Capgemini | IGATE | Capgemini-IGATE* |
| Revenue | 10,573 | 1128.7 | 12,500 |
| EBIT | 853 | 175.0 | 1,250 |
| EBIT Margin | 8.06% | 15.50% | +10% |
| Net Income | 573 | 98.0 | NA |
| Total Assets | 11,459 | 1251.3 | 12,710 |
| Total Employees | 145,000 | 33,484 | 190,000 |
Sources:- Company data, hu research
*:- As estimated for 2015 in company’s presentation
Note:-IGATE figures are converted in euro by taking exchange rate of 1US$= 0.89 Euro.
This deal will be immediately accretive to Capgemini’s operating margin and earnings per share.
Rationale:
North America market
While Capgemini is a major player in Europe, where it gets 70 percent of its $11.5-billion dollar revenues, its revenues from North America – the largest for IT services – is about 20 percent. On the other hand, IGATE gets 80 percent of its revenues from North America. Growing its presence in North America, by far the largest and most innovative technology and services market in the world is at the top of the group’s strategic agenda. The combination of IGATE and Capgemini increases the Group’s revenues in the region by 33% to an estimated $4 billion, making North America its first market with approximately 30% of the proforma combined revenues in 2015.
Upselling and Cross- Selling Services
IGATE has a strong footprint and relationships in the financial services market. Capgemini with its consulting and technology background will be hoping to cross-sell some of its services to IGATE’s portfolio even as it uses IGATE’s base to help some of its European clients of the company to cut costs through outsourcing. This transaction also reinforces Capgemini’s position in the retail, manufacturing and healthcare sectors, and prompts a faster transition to platform-based solutions.
The transaction will broaden Capgemini’s industrialized delivery model globally and increase the group’s competitiveness in all regions. Capgemini will leverage IGATE know-how to accelerate the “People supply chain” transformation.
Conclusion:
This niche acquisition is in line with Capgemini’s strategy to gain a firmer foothold in the United States, increase its offshore delivery capabilities and boosts margins. The IGATE acquisition will enhance Capgemini’s competitiveness across all regions and broadens its offerings in key verticals. The IGATE acquisition turned the spotlight on the future of mid-sized software services companies squeezed between cash-rich larger rivals and nimble start-ups.
In India, unlike IBM or Accenture, French IT major Capgemini was late in scaling up to compete with Indian IT majors like TCS, Infosys, Wipro and Cognizant globally. While IBM and Accenture recognised India’s cost competitiveness in IT services early on and grew their workforce in the last decade and a half, Capgemini started the process only five years ago. IGATE acquisition immediately doubles the low-cost delivery prowess of Capgemini.
