Brief

Capgemini acquires Kanbay, expands Indian presence

Capgemini announced its acquisition of Kanbay for $29 per share in cash. The deal is valued at $1.25 billion based on shared outstanding warrants, restricted shares and vested stock options at year end. The acquisition will be financed by Capgemini’s own funds. “The process will complete by first quarter of 2007,” said Baru Rao, CEO, Capgemini India.

This acquisition fits in with Capgemini’s I-cubed strategy. I-cubed stands for innovation, industrialisation, and intimacy. They aim at industrialisation with a significant growth in offshore development and investments toward improving productivity. Innovation, they feel, will come with a strong domain expertise, and they plan to strengthen their relationships with clients and hence the focus on intimacy. Kanbay fits in perfectly with this strategy because it helps Capgemini expand its Indian presence; giving it a greater talent pool in the financial services segment, and also adds clients to Capgemini’s list.

“Capgemini wants to be a market maker,” said Rao. The goal is to dominate the financial services solutions market. A key goal of the merger was to strengthen Capgemini’s presence in India. This buy-out combines with and complements the company’s plans for the Indian market that involves upping its headcount in India. “We aim to have 35,000 people in India by 2010,” said Rao.

(L to R) Cyprian D’Souza, MD, Kanbay, congratulating Baru Rao, CEO, Capgemini India, on the acquisition

Currently Capgemini employs 12,000 people in India and officials at the company claim that they are growing headcount by 80 to 90 percent every year. “With this acquisition, we will be the third largest non-Indian IT player in India after Accenture and IBM,” added Rao. Another advantage that Capgemini would have with the acquisition of Kanbay is the domain expertise. Kanbay’s principal focus has been upon BFSI and according to Rao, Kanbay’s sector focus is deep. This merger enhanced Capgemini’s client list by adding names such as HSBC, Morgan Stanley, AIG and Sun Life.

“80 percent of Kanbay’s revenues come from the financial segment,” said Cyprian D’Souza, Managing Director, Kanbay, with HSBC being Kanbay’s largest customer. Kanbay’s focus is the US whereas Capgemini’s is Europe. This acquisition gives Capgemini a truly global presence.

After this acquisition, a separate financial services business unit will be set up with a presence in the UK and the US and this unit will be serviced from India. This financial services business unit will be led by Raymond Spencer, the current Chairman and CEO of Kanbay International, who will report directly to the CEO of Capgemini.

According to officials at Kanbay, this acquisition is advantageous to all of Kanbay’s shareholders. Speaking on any potential rebranding of Kanbay, Rao said, “It all depends on what the market wants.”