Rabin Ghosh/Sify
Paris, Jun 29: This could perhaps be the mother of all mergers and acquisitions (M&A) the Indian information technology (IT) sector has been waiting for so long.
Talk on the deal street is that Infosys Technologies, India's second largest software exporter, may bid for Paris-headquartered Capgemeni, which recorded revenues of €7.7 billion or roughly $10.3 billion or Rs 40,000 crore in the year ending December 31, 2006.
The Capgemini stock took off on the Paris Stock Exchange on Thursday, closing 3.7 per cent up at €53.10.
V Balakrishnan, chief financial officer, Infosys Technologies, preferred to dub it as scuttlebutt.
"It is a rumour. We are looking to grow inorganically in the consulting space but we are looking at acquisition valued between $100-200 million. Capegemini's valuation is much more than that," he said.
A Capgemeni spokeswoman declined comment.
An acquisition of this size will help Infosys deal with the stiff competition that it currently faces from global giants such as IBM and Accenture in the consulting space.
Infy's consulting arm posted a loss of Rs 110 crore last year due to this, even though its net profit stood a whisker short of a billion dollars at Rs 3,856 crore.
Tejas Doshi, analyst with Sushil Finance, said margins are very high in the consulting business compared with the other commoditised business that Infosys has.
"If the deal with Capgemini actually happens, Infosys will be able to successfully compete with other biggies in the consulting space ... it will fit in very well," Doshi told Reuters.
However, sceptics abound.
A top investment banker, who did not wish to be named, told DNA Money: "I doubt if Infosys would be interested in acquiring the whole of Capgemeni. What is more plausible is Capgemeni hiving off a particular practice, say financial services, where Infosys could become its joint venture partner."
Infosys is not known to make aggressive M&A moves. Till date it has acquired only one company - Expert Information Services in Australia.
The banker surmised that if the acquisition does take place, it would boost Infy's European business, which currently is at around 25 per cent.
"This would give it a natural currency risk. However, I feel there could be big integration issues involving an European company since France has shorter working hours than India."
Capgemeni has a strong presence in India, too.
By virtue of its recent acquisition of Kanbay International, in one stroke its India operation's head count doubled to 12,000 people, making it the third largest foreign IT employer (excluding business process outsourcing).
India accounts for 16 per cent of Capgemeni's global workforce.
"Infosys has not had any great success out of its consulting business so far. They definitely need to move up the value chain especially when the strengthening of the local currency is threatening to hurt their margins," Doshi said.