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  Capgemini is buying IT services company Kanbay International, boosting its Indian presence.
Consulting-Times E-zine

Capgemini acquires Kanbay; says Q3 organic growth up 13.5%

Capgemini and Kanbay have entered into a definitive merger agreement whereby Capgemini would acquire Kanbay in a transaction valued at $1.3 billion.

Capgemini will pay $29 in cash for each Kanbay share. The transaction, is expected to close by early 2007, is subject to Kanbay shareholder and regulatory approval and other closing conditions.

Capgemini CEO Paul Hermelin said the acquisition supports the company's growth strategy and "significantly enhances" its banking, financial services and insurance practice particularly in India and North America.

In a research note, Ovum analysts Douglas Hayward and Dominique Raviart said the deal is a "clever move," making Capgemini a "significant player in India," pulling "well ahead of its European peers in offshore provision."

The companies stated that the purchase of Kanbay would strengthen Capgemini's presence in North America and confirm its ambition in this market. The transaction is also to increase Capgemini's presence in India.

The combined company would have headcount reaching 12,000 employees in India by 2006-end, an 89 per cent increase on the last quarter. The Kanbay acquisition is also projected to make Capgemini a leader in the Financial Services sector, which accounts for 22% of the global IT market.

Capgemini expressed hopes that the proposed merger would create a multinational behemoth with a workforce of about 35,000 employees in India by 2010, representing about 30 per cent of the global workforce of over 90,000 employees.

Currently, the total staff employed by the expanded company is around 72,000, with Indian representing 16% of the total, which puts Capgemini ahead of IBM (11%), Accenture (11%) and Electronic Data Systems (8%) in terms of Indian headcount percentage.

The company would become the third largest in terms of the total number of employees in the country after IBM (20,000) and Accenture (12,500), excluding the employees in their BPO operations.

The acquisition is estimated to have a positive impact on the company's earnings per share. The anticipated earnings per share accretion are in excess of 5% in 2007 and 10% in 2008.

Capgemini Q3 results

To accompany the announcement of its acquisition of Kanbay, Capgemini posted an early release of its revenue figures for the third quarter.

Capgemini reported consolidated revenue figures for the third quarter 2006 of 1,881 million euros against 1,674 million euros for the third quarter 2005, an organic growth of 13.5.

UK & Ireland led in growth figures, posting a 29.9% increase in revenues. Europe and Asia Pacific, as a whole saw 15.4% growth.

In North America, revenues rose by 5.4%, benefiting from a return to growth of Outsourcing Services and continued growth in the other business lines.

The strongest growth was recorded in Outsourcing Services (+20%) which benefited from the ramp-up of new contracts, as well as additional projects on existing contracts. The other disciplines grew by 9.4%.

Compared to the previous quarter (second quarter 2006), group revenue is down by 1.9% at constant rates and perimeter and by 1.8% at current rates and perimeter, with the momentum of the operations compensating in part for the historical negative seasonality effect.

Bookings recorded for the third quarter 2006 amounted to 1,523 million euros, a rise of nearly 20% over the same quarter 2005 (1,273 million euros). They were especially strong for Outsourcing, but were also up by 17.2% for Technology Services, Local Professional Services and Consulting Services, whose book-to-bill ratio is slightly over 100%.

Capgemini said it will further comment on its Q3 results on November 9.

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