Capgemini Group (CGEMY, Financial) is all set to take over iGATE Corporation (IGTE, Financial) in a deal that is valued at $4.04 billion. After the deal is through, North America will become the merged company's biggest market. Shares of Capgemini closed at 78.37 euros on Sunday and opened at 81.20 euros on Monday showing an increase in value. As for iGate, the stock was being traded at $45.85 at Friday's closing.
Investor’s gain
For every iGate share, Capgemini will offer $48 as per the terms of the deal. The board of directors of both the companies have given their approval. Written consent has also been obtained from 54% of iGate's shareholders. The deal will lead to the formation of a new entity with an estimated revenue of €12.5 billion to be generated in this year. The combined number of employees will be around 190,000. Due to the acquisition, Capgemini can now consolidate its strengths in the BPO field as well as engineering services unit. The Paris-based company can also strengthen its infrastructure and application divisions. In a statement, iGate said that the deal helps Capgemini in its effort to expand its businesses in North America. Revenue in the North American region is expected to increase by 33% to $4 billion. Around 50,000 employees will be stationed to provide service to the North American market, the company said in a statement. The merged company is estimated to earn annual efficiency gains of around $75 to $105 million in the next three years. The acquisition is said to be one of the biggest buy-out in the Information Technology sector.
The transaction works hugely in the favor of Capgemini. General Electric Company (GE, Financial) and Royal Bank Of Canada (RY, Financial) will be their new esteemed clients after the deal is completed. The transaction will also restore shareholders' faith as the company's stock witnessed an all-time low after the internet bubble issue. The credit rating of the company was reduced to a mere figure after the company undertook various restructuring strategies. The operating margin of both the companies together is expected to exceed 10% in 2015 itself.
Management talks
Sunil Wadhwani, the Co-Chairman & Co-Founder of iGate said that the company is more than happy as it is developing into a global enterprise. The company has around 30,000 employees and over 250 clients, market value of around $4 billion and is among the top brands in the IT sector, he said. The New-Jersey based company made $1.3 billion for the full-year 2014. A whooping 79% of revenues came from North America, then Europe accounting for 14% of the revenues. The Asian-Pacific region contributed around 7% of the total revenue.
Paul Hermelin, the CEO of Capgemini said that the acquisition will give the company a new status in the American market. Igate fits into their strategic ambition and will take their industrialization journey to great lengths so as to offer the best services to clients, he said. With the acquisition of iGate, Capgemini will respond faster to the ever-growing and innovative markets. The company does not intend to undertake any acquisition activity for the next two years, he said.
Aftermath
The transaction is expected to boost adjusted EPS by 12% in the coming year. If everything goes as planned, the adjusted EPS is expected to increase from 12% in 2016 to 16% in 2017. The deal will be financed with a combination of shares, debt and cash. Capgemini has however said that they do not intend to dilute their share capital by more than 6%. It is estimated that free cash flow should be more than 600 million euros. The acquisition has to follow the closing conditions, along with regulatory approvals. The deal will be closed by the second half of the year.
