Capgemini To Acquire IGATE In $4 Bln Deal; Lifts Revenue View

(RTTNews) - Capgemini (CGEMY.PK, CAPP) Monday announced the acquisition of US-based technology and services company iGATE Corp. (IGTE) in a $4 billion deal that would expand its presence in the North American market. The transaction is expected to close in the second half of 2015. Capgemini also raised its revenue growth guidance for the full year 2015.

Capgemini and IGATE have entered into a definitive merger agreement for the French consulting and outsourcing firm to acquire IGATE for a cash consideration of $48 per share. The transaction is expected to immediately add to Capgemini's earnings.

Capgemini said the new organization would be in place within 3 months of closing and the integration is expected to be completed within 9 months.

The merger agreement has been approved unanimously by the Board of Directors of both companies. The transaction has also been approved by the written consent of shareholders holding a majority of IGATE's shares.

New Jersey-based IGATE had revenues of $1.3 billion in 2014, and a 19 percent operating margin. North America is IGATE's largest market representing 79 percent of revenues in 2014 followed by Europe with 14 percent and Asia-Pacific with 7 percent.

IGATE will strengthen Capgemini's key businesses in application and infrastructure services as well as BPO and engineering services. The transaction enriches Capgemini's portfolio with new flagship clients such as General Electric and Royal Bank of Canada.

The deal is expected to result in a group with an estimated combined revenue of 12.5 billion euros in 2015, an operating margin above 10 percent and around 190,000 employees. The combined Group will pass the 100,000 employees landmark in its Rightshore delivery centers in 2015.

The combination of IGATE and Capgemini increases the Group's revenues in North America by 33 percent to an estimated $4 billion, making the region its first market with about 30 percent of the pro-forma combined revenues in 2015.

The combination provides cross selling revenue synergies of $100 million to $150 million and annual efficiency gains estimated at $75 million to $105 million to be achieved within 3 years.

The transaction will also accelerate the use of Capgemini's tax loss carry forward in North America, that should add to earnings of at least 12 percent in 2016 and 16 percent in 2017. Separately, Capgemini announced its revenue figures for the first quarter. The company generated 2.764 billion euros, up 10.5 percent from 2.503 billion euros last year. The growth was 1.5 percent at constant currency.

In North America, revenue climbed 33.8 percent to 662 million euros, and grew 11.7 percent on a like-for-like basis.

Asia Pacific and Latin America each reported organic growth of 22.9 percent.

Based on the first quarter results, the company lifted its growth objectives for 2015. Capgemini forecasts a revenue growth, at current rates and perimeter, of at least 5 percent. The company had projected a growth objective of 3 to 5 percent in February.

Furthermore, the group confirmed that it is targeting an operating margin rate between 9.5 percent and 9.8 percent. Organic free cash flow is expected to exceed 600 million euros.

The stock rose 0.5 percent in early trade in Paris.