What does the Capgemini-iGate hug mean now?

INDIA:  Just a few days back, a Forrester report assessed the validity and viability of the announcements by traditional consulting and systems integration providers including Accenture, Capgemini, Cognizant, Deloitte Digital and pointed that even as some of these announcements reflected truly new capabilities, others were simply a renaming and repositioning of older existing practices.

Today, one of these companies looks all set for a new posture on more platform-based and intellectual property-based solutions. Capgemini has announced that it is going to acquire IGate (at a price tag of $4.04 billion), and both the companies have reportedly dived into a definitive merger agreement.

Analysts are already taking out their microscopes and telling the industry how this deal may pan out ahead. The chief conclusion amidst these close-up views is a better geographic footprint in regions like India and North America (which becomes significant when juxtaposed with Capgemini's quintessential European lineage) and a new penetration strength in some verticals.

It is being surmised that post the completion of this deal, North America will stack up as some 30 per cent in terms of the combined 2015 revenue allowing Capgemini a larger market share and access to anchor clients and footholds in verticals like financial services and manufacturing.

It also connotes a stronger presence in India and this is of critical importance when we see that Capgemini has worked hard over the last few years (Kanbay acquisition in 2006 being a case in point) to bolster India operations.

An HfS analyst interpreted in a recent post that a combined force of two IT stalwarts (he has even cited TCS and IBM as future examples here) gives them the advantage to cover all aspects of delivery, all verticals, all technologies along with skill at massive scale and possibility of undercutting the competition on key deals – almost at will – if they needed to.

The sum effect of a combined force-effect translates into a better footprint for global delivery, transformational talent, low-cost transactional labor, proprietary automation and cognitive capability, analytics, BPO, cloud platforms, mobility, digital consultants, unique software solutions and product engineering.

He also wonders - Now would IBM really buy TCS? His take - "Probably never, as there is simply too much history in both providers, and this is just too bloody big. Plus, it would create a leadership challenge of unprecedented proportions in this industry. But this industry needs change, it needs real disruption like this to shake us to our foundations and force the new thinking and new behaviors the As-a-Service Economy demands."

If the HfS expert feels that this industry needs a mega-merger (or three) to change the game, he is not alone in his prognosis.

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

Capgemini was mentioned in 'The Forrester Wave, Infrastructure Services Outsourcing, Q1, 2015' and after being assessed against 61 criteria, it was noted for its strength in Service Integration and Management (SIAM) and its aggressive stance in positioning its cloud brokering capability, its strong point in its capacity for innovation and its focus on continuous improvement.

Iyengar remarks echo the emerging analysis that now with the added 'huge' bonus for Capgemini  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, the change 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."

But as he cautions, the biggest challenge and hurdle ahead of them is the multi-cultural integration task that lies ahead. and 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."