Why is Capgemini buying iGate for USD 4 billion

Moneycontrol Bureau

Capgemini and iGATE on Monday entered into a definitive merger agreement following which Capgemini will buy out iGate for a cash consideration of USD 48/share. About 54 percent shareholders have given their approval to the said deal. The transaction is expected to close by the second half of CY15.

“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,” both the firms told in a joint press release.

The deal will be financed through a combination of Capgemini's own cash, debt and an equity portion that will not exceed a 6 percent dilution of the French firm's share capital.

iGate, a technology and services company headquartered in New Jersey reported 2014 revenues of USD 1.3 billion, double-digit growth, and a 19 percent operating margin.

Following are the key reasons for Capgemini to pick iGATE

1. Experts says Capgemini will position iGATE as wholly owned subsidiary of North America. The combination of the two companies will increase Capgemini’s revenues in the region by 33 percent to an estimated USD 4 billion.

2. Along with this Capgemini will also get top-of-the line clients like General Electric and Royal Bank of Canada.

3.  Opportunity to build, scale and cross sell. The two companies cater to segments that are complimentary to each other. The merger will help add capabilities in analytics, BPO and engineering services.

4. Capgemini’s management expects normalised EPS (excluding restructuring costs and amortisation of intangible assets) to be boosted by 12 percent in 2016 and 16 percent in 2017.

5. The merger would result in making an IT company with an estimated revenue of Euro 12.5 billion in 2015, an operating margin above 10 percent and nearly 1.9 lakh employees.