Capgemini Acquires iGATE – a Transformational Deal

Indian newspapers were rumbling last week with rumors that Capgemini, Europe’s largest IT Services firm, was close to signing a deal to acquire iGATE. This week, the deal was confirmed as Capgemini agreed to acquire iGATE for approximately $4 billion in an all cash deal, representing one of the largest deals in the IT Services space since Xerox acquired ACS in 2010.  The transaction equates to approximately 3.5x LTM Revenue and 17x LTM EBITDA.  In total, the deal will create a combined company with nearly $14 billion in annual revenue and a global workforce of 190,000, basically a gorilla that is now better equipped to compete with the likes of Accenture and IBM.

While many of the IT Services and Outsourcing companies have been focused on niche acquisitions to fill IP or vertical gaps over the past 12-24 months, this deal is a transformational one for Capgemini.  The acquisition of iGATE fills three critical platform gaps and strategic priorities for Capgemini:1) greater exposure to the North American market, which post acquisition will now represent the largest geographic end-market for Capgemini, 2) greater penetration into the financial services industry, which represented nearly 40% of iGATE’s total revenue, and 3) greater breadth of delivery capabilities out of India in order to reduce labor costs.

While we don’t expect any similar transformational deals of this size to happen in the near future (largely because there aren’t many $1 billion revenue Indian IT Services companies left with the exception of the giants), we do expect the large IT Services and Outsourcing companies to continue engaging in niche acquisitions to further build out critical gaps in their platforms.