On October 26, Capgemini, Europe’s largest consulting, technology and outsourcing services provider (and my employer) threw its hat in the IT industry consolidation arena as one of the aggressors with its $1.25 billion acquisition of Kanbay International, a Chicago-based NASDAQ listed tech services provider to the financial services industry.
23 months ago, the New York Times erroneously reported that Capgemini was shopping its beleagured North American practice for “only” $1 billion after conceding that its 2000 acquisition of Ernst & Young Consulting was a failure. Wrong. Capgemini’s purchase of Kanbay reaffirms the corporate commitment to North America (where the NA firm’s turnaround to a profit-generator since September 2005 after 4 years of red ink has been one of the best kept secrets in journalism!), doubles the firm’s size in India to 12,000 employees and creates a financial services leader in strategy consulting, system integration, testing and applications development & management.
From a globalization standpoint, the Financial Times had the most lucid and well-rounded coverage of the transaction to this informed observer on the 27th….
Paul Hermelin no longer looks the embattled chief executive of former years. Some strains, however, still show. After all, the past six years have been no picnic for the Capgemini boss. Most of his time has been devoted to a painful restructuring following the French information technology services company’s ill-fated acquisition of the Ernst & Young US consultancy business at the peak of the tech bubble. But the turnround has been completed, the company is back in profit, and Mr Hermelin has managed to survive in his job. And on Thursday he announced the start of a “new chapter” with his first big acquisition since the Ernst & Young deal. Capgemini is splashing out $1.25bn to buy Kanbay International – a Nasdaq-listed company headquartered in Chicago, founded by an Australian, whose main technology services business is based in India, where it employs 5,000 people. You could hardly get more global. It is paying cash and is considering raising a further €500m ($635m) in equity for further acquisitions – in Poland, for example – because Mr Hermelin says the company now sees its future in terms of “conquest and ambition”. India will become the group’s second largest region after France, accounting for 16 per cent (or 12,000 people) of its workforce. The company is banking on its expanded lower-cost skilled Indian staff to strengthen the margins of its outsourcing business. Mr Hermelin admits Kanbay is an “expensive” company, but Indian IT ventures are not cheap these days. Analysts – scathing in recent years – appeared impressed. Pity, though, that the Ernst & Young distraction prevented the company moving more quickly and resolutely into India.
Let me know what you think of Kanbay…
