Capgemini buys iGate of the US for $4bn

Capgemini has agreed to buy US-based iGate for $4bn, in an all-cash deal that would boost the French IT and consulting company's exposure to the fast-growing US market.

The Paris-based group said that it would pay $48 per iGate share, 4.7 per cent above the previous closing price of the technology and services company.

The planned acquisition, which has the approval of the two boards, would create a group with an estimated €12.5bn of annual revenue, with North America as its biggest market, accounting for about 30 per cent of total sales.

Capgemini's acquisition could spark a wave of deals in the IT services and outsourcing sector, as several Japanese and European companies are eyeing smaller US rivals similar to iGate to expand their business.

Atos, another French outsourcing company, recently acquired Xerox's IT services business for $1.1bn and is believed to be open to more deals in North America, according to one banker. Other potential buyers of US assets include Spain's Indra and Japan's Hitachi and NTT Data.

Paul Hermelin, Capgemini's chief executive, said: "It will give us a new status on the American market." Stressing that he was looking to diversify Capgemini's geographical mix, Mr Hermelin added: "We were mainly looking at a US acquisition. It is a vibrant market."

Almost 80 per cent of iGate's $1.3bn in annual revenues comes from North America, where IT services are growing faster than in Europe.

The two companies made the announcement as Capgemini reported first-quarter results, with revenue up 10.5 per cent in the three months to March 31, to €2.76bn.

Capgemini shares were trading at €84.37 by mid-afternoon, a jump of 7.7 per cent compared with Friday's close. IGate shares, which trade on the Nasdaq exchange, rose 3.5 per cent to $47.44.

Mr Hermelin said that the acquisition, which is subject to regulatory approval, would lift group operating margins by at least 1 percentage point to above 10 per cent, thanks to iGate's operating margins last year of 19 per cent.

The company, which is headquartered in New Jersey, provides applications and services, with sales to financial institutions accounting for about 42 per cent of annual revenue.

Capgemini said that the deal would deliver annual cost savings of between $75m and $105m within three years. Capgemini said on Monday that it expected the deal to be completed within nine months.

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