The Hindu Business Line : IT services abuzz again

The consolidation buzz is back in the mid-cap software services space. Capgemini, the largest European IT services company, which has been on the acquisition prowl for almost a year has finally snapped up the Nasdaq-listed Kanbay International in a deal valued at $1.25 billion. More than the deal size, it is its strategic rationale that is of far greater significance.

For Capgemini, building up an offshoring back-end (which Kanbay will offer) was imperative as it faced the prospect of losing clients to Indian frontline companies that are beefing up their marketing infrastructure significantly in Europe. Second, an offshoring presence was also important as companies such as Capgemini currently have operating profit margins in the low single-digits and offshoring alone can help them shore up these margins.

Third, with Kanbay completing the integration with Adjoined Consulting that it acquired earlier this year, this acquisition is also likely to strengthen Capgemini's capabilities in the consulting arena. Finally, at the industry level, the competitive bar has once again been raised, both for multinational and Indian frontline vendors. This acquisition is poised to put Capgemini head-to-head with IBM, Accenture and EDS (which recently acquired MphasiS) in the IT services arena. Will the deal usher the next round of consolidation in the mid-cap IT services space?

Krishnan Thiagarajan

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