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Capgemini buys India-linked iGATE in $4-bn all-cash transaction

Capgemini will buy iGATE at a price of $48 per share, which is a 12% premium over the 30-trading day volume-weighted average price.

Capgemini acquires IGATE
Capgemini acquires IGATE
Capgemini, the France-headquartered global IT services major, on Monday announced the acquisition of iGATE (Reuters)

Capgemini, the France-headquartered global IT services major, on Monday announced the acquisition of iGATE, the US-listed company with a significant employee presence in India in an all-cash deal valued at $4 billion. This acquisition will enhance Capgemini’s presence in the North American market and also take its employee headcount in a key delivery location like India to over 1 lakh by end of 2015.

iGATE derives 70% of its revenues from North America with clients like GE, MetLife and Royal Bank of Canada, and has a global headcount of 33,000 with over three-fourths of them based in India. The merger will help add capabilities in analytics, BPO and engineering services. Capgemini’s management expects normalised EPS (excluding restructuring costs and amortisation of intangible assets) to be boosted by 12% in 2016 and 16% in 2017. The merger would result in the IT firm achieving an estimated revenue of 12.5 billion euros in 2015, an operating margin above 10% and nearly 1.9 lakh employees.

Paul Hermelin, chairman and CEO of Capgemini, said: “It will give us a new status on the American market, and take further our industrialisation journey to offer ever more competitive services to our clients. This will also give to the group’s Indian operations a new scale, allowing us to compete on par with the best US-based and Indian-based companies.”

iGate

Capgemini will buy iGATE at a price of $48 per share, which is a 12% premium over the 30-trading day volume-weighted average price. It will also see the exit of its founder promoters — Ashok Trivedi and Sunil Wadhwani — besides private equity player Apax Partners, who together hold 54%. Hermelin said it was an exclusive negotiation and there was no auction process involved.

Capgemini will finance this transaction through a combination of cash, debt and equity. Following this transaction, iGATE will become a wholly owned subsidiary of Capgemini operations in the US, but they did not spell out whether the company will be delisted in the US.

The talk of iGATE’s impending sale began as soon as Apax Partners converted its debt holding into an equity stake of 29% in February this year. Apax had funded iGATE’s acquisition of Patni in 2011. iGATE had ended 2014 with a revenue of $1.3 billion with 281 clients. India has the presence of giant MNC IT firms like IBM and Accenture which have an headcount of over 1 lakh in the country.

Commenting on the acquisition, Partha Iyengar, Gartner vice-president and head of research, said, “Capgemini has been investing in creating a more compelling global delivery offering, starting with the Kanbay acquisition earlier. However, compared to their other ‘global global’ peers, Accenture and IBM, they were still a distant third in this capability, and compared to the global Indian providers were even more behind. This acquisition, in one fell stroke, levels the playing field to a large extent both in terms of capacity as well as breadth of coverage areas and industry verticals.” He added, “The added huge bonus for Capgemini is that it gives them, again in one move, a great presence and foothold in the US market, which has always been a challenge for them as a Europe-centric provider.”

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