Analyst perspective on Capgemini's acquisition of IGATE: Sanchit Vir Gogia, Greyhound Research

Following IGATE's acquisition of Capgemini, Greyhound Research's Sanchit Vir Gogia, said that while the deal is good, it is on the expensive side.

Here is Sanchit Vir Gogia's perspective on the deal:

Greyhound Research believes that the acquisition of iGate by Capgemini is a sweet deal for investors but a surely a deal on the expensive side. While this should ideally help catapult Capgemini’s business in the United States but output will much depend on how Capgemini plans to integrate both the business and approach clients for conversations.

Capgemini has been investing in India for the last few years -both as a delivery center and as a market -as it looks to compete on a more even playing field with Indian IT providers.  It took a little time in adopting India as its global hub for offshoring but is now going full throttle.

Capgemini’s dependence on India for manpower is higher when compared with its two main multinational rivals. Accenture has about 60,000 employees in the country, or about a fifth of its global workforce, while IBM employs a quarter of its 434,000 employees in India. But, it’s not only about the headcount. Offshoring makes up 44 per cent of Capgemini’s total global revenue. India handles 80 per cent of the offshore work. The remaining 20 per cent is shared by Morocco, Poland, China, Argentina and Guatemala. India has helped Capgemini become a more global player. India handles most of Capgemini’s clients in some form or the other.

Capgemini have to increasingly focus on operational services and a range of corporate support functions, ensuring the key growths of each BU and various markets. Capgemini is also betting big on Digital services, the company will have to work towards ensuring these services contribute increasingly to the company’s overall revenue."

Greyhound Research believes that IGATE has seen a decline in the margins and their costs had gone up considerably. The revenue increase has been a nominal 10%. The company has been on the blocks and has been up for grabs for the past 4 years.

IGate’s main strengths have been in Healthcare, FSI and Manufacturing sector. The Healthcare sector in the west presents a lot of opportunities, especially in UK. Also, with NHS in UK going the privatization way soon, we believe this surely puts Capgemini in a very well placed and profitable spot.

Since IGate has been a strong player in the mid-tier segment, it allows them a cost advantage much more than some of its larger peers.  IGate has been aggressively focussing on Mobility and Digital, we believe this also works in favour of Capgemini as both the organisations have their own strengths in Digital.”