Capgemini to acquire IGATE in $4 bn deal; expects to scale up India operations

Capgemini and IGATE today announced that they have entered into a definitive merger agreement under which Capgemini will acquire IGATE for a cash consideration of $48 per share. The transaction will amount to $4.0 bn and is expected to be immediately accretive to Capgemini’s normalized Earnings Per Share (EPS).

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 shareholders holding a majority of IGATE’s shares.

IGATE is a prominent US-listed technology and services company headquartered in New Jersey with 2014 revenues of $1.3 billion, double-digit growth and a 19% operating margin. North America is IGATE’s largest market representing 79% of revenues in 2014 followed by Europe (14%) and Asia-Pacific (7%). IGATE strengthens Capgemini’s key businesses in application and infrastructure services as well as BPO and engineering services. Moreover, the transaction enriches Capgemini’s portfolio with new flagship clients such as General Electric and Royal Bank of Canada.

Sunil Wadhwani, Co-Founder and Co-Chairman of IGATE said: “We are gratified that the company we founded over 25 years ago has developed into a global enterprise with over 30,000 employees, a trusted partner to over 250 clients, a market value of over $4 billion, and one of the most respected brands in the IT industry.”

This transaction would lead to a group with an estimated combined revenue of €12.5 billion in 2015, an operating margin above 10% and around 190,000 employees. The combined Group will pass the 100,000 employees landmark in its Rightshore delivery centers in 2015.

This transaction fulfills one of the essential components of Capgemini’s strategy in expanding its presence in the North American market.

Paul Hermelin, Chairman and CEO of Capgemini, said, “I am very pleased to announce a very important transaction in Capgemini’s history. 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. I am glad to welcome new talents and leaders to our Group, who share our convictions and professional culture.”

Scaling up in 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 bn, making North America its first market with approximately 30% of the pro-forma combined revenues in 2015. An estimated 50,000 employees will be servicing Capgemini’s North American clients.

Reinforcing sector expertise notably in financial services

With its established position in the financial services sector (42% of revenues), IGATE brings an attractive portfolio of major clients complementary to those of Capgemini. This transaction also reinforces Capgemini’s position in the retail, manufacturing and healthcare sectors, and prompts a faster transition to platform-based solutions.

Enlarging capabilities and offering portfolio

In addition to its experience in applications services, IGATE has complementary capabilities in Infrastructure services (3,000 FTEs), Vertical BPO (3,500 FTEs) and Engineering services (3,500 FTEs). Moreover, its intellectual property offerings such as IDMS in analytics present a high growth and margin potential.

Enhancing the Group’s competitiveness

The transaction broadens Capgemini’s industrialized delivery model globally increasing the Group’s competitiveness in all regions. Capgemini will leverage IGATE know-how to accelerate the “People supply chain” transformation.

The combination of IGATE and Capgemini provides cross selling revenue synergies of $100-150M and annual efficiency gains estimated at $75-105M to be achieved within 3 years.

Building on both companies previous experiences of integrating acquisitions and a strong cultural fit, the integration is expected to be smooth. The new organization will be in place within 3 months of closing and the integration is expected to be completed within 9 months.

In addition to attractive synergies and a favorable financing environment, the transaction will accelerate the use of Capgemini’s tax loss carry forward in North America, resulting in an accretion to normalized EPS of at least +12% in 2016 and +16% in 2017.