The world has been witnessing quite a few mergers and acquisitions lately. The newest addition to this list is IGATE Corp (NASDAQ:IGTE). As per the reports, Capgemini has offered as much as $4 billion to IGATE for acquiring it. The amount is to be paid in the form of equity, debt and cash.
The Background Story:
Capgemini wants to get a hold in North American market, and there is no better way than acquiring IGATE. North America is considered as the largest IT Outsourcing market; hence, this acquisition will empower Capgemini to a great extent. The total amount offered in this deal is $4 billion funded by internal debt, cash and equity. If taken into consideration the recent performance of IGATE, the amount offered to it is 3.2 times bigger than its annual revenue of 2014 i.e. $1.2 billion.
If one takes into account such transactions that took place over the last four years, it’s easy to figure out that small and mid-sized Indian IT companies were bought in a ratio of 1:6. The deal value is little over 15.3 times of IGATE’s EBITDA of $263.9 million in 2014. Bloomberg median for other deals similar to this one comes around 14.6 times, which makes this deal reasonably expensive.
When IGATE acquired Patni Computer Services in 2011, it was valued at Rs. 5,560 crore or 1.6 times of total annual revenue that it generated that time. One other example of a deal similar to this is of Hexaware’s acquisition by Baring Partner in August 2013. At the time of the deal, the acquirer valued Hexaware at Rs. 3,000 crore or 1.5 times of its annual sales.
Analysts call it an expensive deal but justify Capgemini’s move because IGATE Corp (NASDAQ:IGTE) has a strong presence in the North American Market. The former hopes to have a favorable impact of this deal on its market share in the near future.