Five things you need to know about Capgemini's IGATE buy

Venkatesha Babu, deputy editor, Business Today

Unlike IBM or Accenture, French IT major Capgemini was late in scaling up in the country to compete with Indian IT majors like TCS, Infosys, Wipro and Cognizant globally. While IBM and Accenture recognised India's cost competitiveness in IT services early on and grew their workforce in the last decade and half, Capgemini started the process only five years ago. Accenture and IBM have more than 100,000 people in their Indian operations; Capgemini even now has just about half of that. IGATE has around 33,000 employees, almost all of them in India. IGATE acquisition immediately doubles the low-cost delivery prowess of Capgemini.

2. It is about the North American market

While Capgemini is a major player in Europe, where it gets 70 per cent of its $11.5-billion dollar revenues, its revenues from North America - the largest for IT services - is less than 20 per cent. On the other hand, IGATE gets 80 per cent of its revenues from North America. Thus, there is almost little or no client overlap and Capgemini gets a more global profile.

3. Upselling and cross-selling services

IGATE has a strong footprint and relationships in the financial services market. Capgemini with its consulting and technology background will be hoping to upsell and cross-sell some of its services to IGATE's portfolio even as it uses IGATE's base to help some of its European clients of the company to cut costs through outsourcing.

4. IGATE has been in play for some time

Founded by two PIOs Ashok Trivedi and Sunil Wadhwani, IGATE was a tier-II player with a troubled history of management churn. However, in 2011 it acquired Patni Computers for $1 billion. Patni then was three times the size of IGATE and the company had borrowed $480 million to complete the transaction and delist Patni from Indian bourses. However, subsequently the then CEO Phaneesh Murthy left under a cloud even as the promoters reduced their stake and PE firm Apax Partners became the single largest shareholder. Apax was shopping IGATE around for some time, which was a well known fact in the industry.

5. Making large acquisitions work is difficult

While Capgemini has a history of making small niche acquisitions and integrating them successfully, there are concerns that the purchase price of $4.04 billion for IGATE may be high and integrating operations across borders might prove challenging.