Capgemini strengthens North America biz with IGate acquisition

BANGALORE, INDIA: The French IT services company, Capgemini announces plans to buy IGate Corp for $4 billion cash. The acquisition will strengthen its businesses in application and infrastructure services as well as business process outsourcing and engineering services.

IGate, an IT services outsourcing and consulting company with strength in the financial services, retail, manufacturing and healthcare, had 2014 revenue of $1.3 billion, with double-digit growth, a 19 per cent operating margin,  and a global employee talent capital of 33,000. IGate reportedly has about 80 per cent of its operations in North America.

The acquisition will make North America its biggest market and raise its sales outlook for 2015 after a solid first-quarter, the French IT services company said on Monday. After completion, North America will represent 30 per cent of estimated combined 2015 revenue of 12.5 billion euros ($13.58 billion), raising Cap Gemini's revenue in the region by about a third.

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. 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,” said Paul Hermelin, Chairman and CEO of Capgemini.

“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," said Ashok Vemuri, CEO of IGate.

Partha Iyengar, Gartner Vice President and Head of Research – India 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’ 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."

"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. This boosts their presence and revenue in the largest market for global sourcing and gives them a credible offering for the US market. Acquiring this in an inorganic manner, especially since they were very late to the global sourcing paradigm earlier on, would have been difficult to impossible," added he.

But this throws a challenge as well. "The biggest challenge and 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. They will have to move very quickly to convince clients that projects are safe and that the Cap acquisition gives IGate clients a much bigger capability and deeper domain expertise in some domains (which it does). If they are not successful in doing this, they risk the flight of clients, especially in the US," said Iyengar.