M&A deals: Capgemini acquires iGATE

In another of the Merger and Acquisition cases, Capgemini, a French IT services and consulting company announced on 27th April its acquisition of a New Jersey-based company, iGATE, an applications, network and business process outsourcing specialist. iGATE was founded in 2006 by two Indians, Ashok Trivedi and Sunil Wadhwani. iGATE recorded a revenue of $1.3 billion in 2014, with double digit growth and a 19% operating margin. The deal has been closed off at $4.04 billion, with Capgemini offering $48 per share of iGATE, which is 4.74% higher than its last closing price on NASDAQ($45.5).

The merger is expected to help the company attain revenues of $13.58 billion in 2015 and an operating margin of 10%, with around 190,000 employees, 27,000 of whom will be based in India. “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 industrialisation journey to offer ever more competitive services to our clients,” said Capgemini president Paul Hermelin in a statement.

The main aim of Capgemini was to reinforce itself geographically in the United States, and iGATE being a company having its firm roots in the US and India, seemed an ideal option. iGATE generates around 80% of its annual revenue from North America, and hence it will help Capgemini in increasing about a third of its revenue in a region which is considered to be the most innovative technology and services market in the world. This will also give them a new status in the American market.

The acquisition will be partly funded by Capgemini’s cash reserves, as well as an increase in the equity capital of the firm, simultaneously ensuring that the increase in capital will not dilute the existing shareholders by more than 6%. The rest of the funding will be made through debt. The merger has been agreed to by both the parties, with 54% of iGATE’s shareholders backing the deal.

As is normally observed in any M&A scenario, Capgemini’s stock prices are expected to increase after the merger, but will observe a gradual decline after a year or so. Capgemini is not looking forward to any big mergers after this for the next two years.

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