decor decor
"Business is a combination of war and sport."

-Andre Maurois

Capgemini Announces Acquisition of IGATE

martinwolf Transaction Analysis

Financial Information

  • Transaction Size: $4.6 Billion
  • EV/LTM Revenue: 3.5x
  • EV/LTM EBITDA: 17.2x

Transaction Facts

  • French IT services company Capgemeni (CAP.PA) announced today that it was acquiring rival U.S.-based IT services firm IGATE Corp. (Nasdaq:IGTE) for $48 per share, a 5 percent premium over the company’s Friday closing price.
  • According to the press release, the combined company will have revenue of 12.5 billion EUR for 2015 and an employee headcount of approximately 190,000.
  • Capgemeni will fund the acquisition through a combination its own cash, a capital raise and debt. Its share price increased almost 8 percent Monday on news of the acquisition.
  • IGATE’s share price has been steadily growing since its last earnings report on Jan. 20. After today’s close, the company is up almost 35 percent since markets opened on Jan. 21.

Buying Into a Large Market, With Cultural Concerns Looming

  • Cementing An Already Strong Presence: Capgemini has called North America the most innovative technology and services market in the world. It is already Capgemini’s strongest region, where in the first quarter it experienced 34 percent revenue growth. With 80 percent of IGATE’s business coming from North America, this acquisition will see the region represent 30 percent of the combined group’s 2015 revenue, making it Capgemini’s largest market.
  • Shortcut to Success: Acquiring IGATE provides a financial shot in the arm beyond its size alone. Capgemini expects the acquisition to grow its EPS by at least 12 percent next year and raise its operating margin (previously expected to be 9.5-9.8 percent) above 10 percent.
  • Commoditization Threatens Space: On Friday, Infosys, another major player in the IT services industry, announced its Q4 earnings. The company, struggling with commoditization in its traditional services, reported revenue that was among its weakest in three years.
  • Potential Cultural Issues Present Concerns: While this acquisition presents clear opportunities for Capgemini, we are concerned about the potential for cultural clashes. As a “national champion,” Capgemini is subject to greater political interference that may compromise IGATE’s effectiveness (see the fates of Alcatel-Lucent, Renault/Nissan and Danone for examples). If it were acquired by a British or American company, we would be more optimistic-but for now, we’ll be watching closely to see what happens.

For more information on this transaction, click here.

martinwolf was not the advisor in this transaction.
previous post Back to Articles next post

09 May 2023

DynamicsCon LIVE Conference Information

martinwolf will be attending the DynamicsCon LIVE conference in Scottsdale May 22-25. Book a confidential one-on-one meeting with Michael Rosholt to learn about market trends, current valuations, and how to prepare for a sale.    DynamicsCon attendees are also eligible for a complementary M&A Readiness Scorecard from martinwolf.   Contact Michael Rosholt at mrosholt@martinwolf.com to...

22 Feb 2023

How Microsoft Channel Partners Can Command High Valuations

In today’s rapidly changing ecosystem, simple organic growth doesn’t give Microsoft Channel Partners long-term competitive advantage.   During the last five years, Microsoft Channel Partners have commanded high valuations due to strong and sustainable business models, as well as a track record of profitability. Most were small mid-market businesses that had to decide to be...

31 Jan 2023

Rising Interest Rates Chill Private Equity Pace

After a year of strength on the private equity front, 2022 is now in the rearview mirror and industry professionals anticipate a downgrade in performance for the coming year.   Despite the fluctuations of the past few years, private equity has withstood the challenges relatively well. However, in certain areas such as exit activity and...