IGATE founders to bag $1 billion post Cap Gemini acquisition

French IT services company Cap Gemini plans to buy U.S.-based rival IGATE Corp for $4 billion, in a deal that makes North America its biggest market and hands IGATE's founders a $1 billion windfall. 

Cap Gemini also raised its 2015 sales forecast on Monday in a first-quarter statement brought forward to coincide with the announcement of the cash deal. Its shares climbed 7.5 percent. 

IGATE, a technology and services company with strength in the financial services sector but also active in retail, manufacturing and healthcare, has grown fast since its 1996 stock market listing. 

Its 2014 revenue was $1.3 billion, up from $240 million in 1997, and Cap Gemini said IGATE still enjoyed double-digit growth and a 19 percent operating margin. 

The acquisition will significantly bolster the French company's presence in North America, which it described as "by far the largest and most innovative technology and services market in the world". 

IGATE does about 80 percent of its business in North America, which will represent 30 percent of the combined group's estimated 2015 revenue of 12.5 billion euros ($13.58 billion), raising Cap Gemini's revenue in the region by about a third. 

Cap Gemini, whose market capitalisation was about 13 billion euros ($14 billion) at the close of business on Friday, said it would pay $48 a share for IGATE. 

The U.S. company's shares closed on Friday at $45.85 and climbed towards the offer price at the opening on Monday. 

FOUNDERS KEEPERS 

The deal will be financed partly through about $1 billion of Cap Gemini's own cash, the buyer said, along with an equity portion that will not exceed a 6 percent dilution of the French company's share capital. That would leave over $2 billion to be financed through debt. 

Cap Gemini said it had the backing of shareholders representing 54 percent of IGATE's share capital, and that the deal would enhance earnings by 12 percent in 2016 and 16 percent in 2017. 

Ashok Trivedi and Sunil Wadhwani, the Indian-American co-founders and co-chairmen of IGATE, have holdings of 12.81 percent and 12.99 percent respectively and so stand to take away over $1 billion between them. 

The acquisition will strengthen Cap Gemini's businesses in application and infrastructure services as well as in business process outsourcing and engineering services. It will also new flagship clients such as General Electric and Royal Bank of Canada. 

The combined group's operating margin will be above 10 percent, the French firm said. 

IGATE employs 33,000 people globally, 75 percent of them in India. The combined group will have more than 100,000 employees there, or 48 percent of its workforce.  

In a separate statement, Cap Gemini said sales grew by 10.5 percent in the first quarter and raised its revenue growth target to "at least 5 percent" from its previous forecast of between 3 percent and 5 percent.  

Additional reporting and writing by Andrew Callus
Photograph, courtesy: Vishal.wadkar86/Wikimedia Commons