French IT services company Capgemini is to acquire iGate in the U.S. for $4 billion, in a bid to expand its presence in the North American market.
The deal will boost Capgemini's revenue from North America by 33 percent to $4 billion, making the region the first to account for 30 percent of its revenue.
The iGate acquisition also brings to Capgemini additional expertise in application and infrastructure services, business process outsourcing and engineering services. Capgemini also gets iGate's clients, including key customers such as General Electric and Royal Bank of Canada, to whom it can now cross-sell its own services.
Capgemini now has clients like GE, which eluded it for two decades, more staff for global delivery of services, and the opportunity to offer high-end services to iGate clients, said Sudin Apte, CEO and research director of analyst firm Offshore Insights in a note.
The smaller company likely decided to sell out as it wasn't sufficiently differentiated from its larger competitors, and at revenue of about $1 billion, it could not have the scale to compete effectively with rivals like Cognizant Technology Solutions and Tata Consultancy Services, he added.
After the acquisition, the merged entity will have an estimated combined revenue of €12.5 billion ($13.6 billion) in 2015, an operating margin above 10 percent and around 190,000 employees. About 50,000 of these employees will be focused on North American clients.
iGate had revenue of $1.3 billion in 2014, of which 79 percent came from North America.
Both Capgemini and iGate in New Jersey have offshore delivery from low-cost locations like India.
The deal will be financed through a combination of Capgemini's own cash, debt and an equity portion that will not dilute its share capital by more than 6 percent.
The boards of both companies have approved the merger. It has also been approved in writing by a majority of iGate shareholders. The transaction is expected to close in the second half of 2015, subject to customary closing conditions such as regulatory approvals.