Cap Gemini SA (CAPP.PA), a French information technology services company, said it will buy U.S.-based rival IGATE Corp (IGTE.O) for $4 billion in a deal that would make North America into its biggest market and hand IGATE’s founders a $1 billion windfall.
IGATE, which has strength in the financial services sector, has grown quickly since its 1996 stock market listing.Cap Gemini said IGATE has been recording double-digit growth and a 19 percent operating margin. Its 2014 revenue was $1.3 billion.
IGATE does about 80 percent of its business in North America, and would represent 30 percent of the combined group’s estimated 2015 revenue of 12.5 billion euros ($13.58 billion).
The deal would enhance earnings by 12 percent in 2016 and 16 percent in 2017, according to Cap Gemini. The combined group’s operating margin would be above 10 percent.
Cap Gemini, whose market capitalization 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 added 3.5 percent to $47.45 on Monday.
Ashok Trivedi and Sunil Wadhwani, the founders of Igate, will get $1 billion for the company that they founded with $100,000 some 27 years ago.
Wadhwani graduated from IIT Madras in the 1970s and went to the US for a master’s degree in management from Carnegie-Mellon University. Soon after, in 1981, he founded a medical device manufacturing firm. During this same period, Trivedi did a BS and MS in physics from Delhi University and went to the Ohio University, US, for an MBA. He then worked at Unisys Corp for 10 years.
Wadhwani and Trivedi were long-time friends, says Dilip Hiro in his book “Indians in a Globalizing World”. The two were in the Pittsburgh area and would meet often at a bar, Hiro says. And it was during these sessions that the idea of Mastech – the company that went on to become Igate – emerged.
A former executive of Igate says the company made good money towards the end of the millennium when companies worried about the Y2K problem. Wadhwani and Trivedi also used the dotcom boom time to introduce several e-services, and brought all their businesses under the name iGate Capital.