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Outsource magazine: thought-leadership and outsourcing strategy | August 21, 2017

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Capgemini in $1.25 billion purchase

Outsource Magazine

Capgemini has acquired US-based Kanbay International for$1.25 billion to accelerate its growth in India and better its positionin finance consulting in North America.

The acquisition will triple Capgemini’s workforce in India to around 12,000 people. The transaction is expected to close by early 2007. Capgemini will continue using Kanbay’s name for “some more time” till a final name for the merged company is decided.

Capgemini CEO, Paul Hermelin, said: “The acquisition of Kanbay, a world-class IT services provider, supports our growth strategy and significantly enhances our global banking, financial services and insurance (BFSI) practice, particularly in North America and India, where Kanbay has over 5,000 associates.

“The acquisition also gives us valuable capabilities in Consumer and industrial products, telecommunications, media, life sciences and the travel & leisure verticals…It fits in perfectly with the Group’s expansion program called I3 which focuses on three levers: industrialisation, intimacy with our clients and innovation.”

Kanbay, which is based in Chicago, has most of its outsourced operations in India, with more than 5,000 of its 6,600 employees based in its development centers in Pune, Hyderabad and Madras.

“This is a clever move for several reasons,” argued Douglas Hayward of analyst firm Ovum. “First, Kanbay brings presence in financial services (79% of revenues) and in the US: two areas where Capgemini needed to develop not only in project services but also in application management. Second, Capgemini becomes a significant player in India and pulls well ahead of its European peers in offshore provision. Third, Kanbay brings a focus on financial services, rather than on generic staff augmentation offering.

But Ovum has some concerns. “There are a few concerns apart from the usual integration issues,” said Hayward. ” Kanbay is heavily dependent on HSBC (which also is stockholder), especially in North America. 34% of Kanbay’s revenues come from HSBC, down from 53.1% in 2005. Morgan Stanley also accounted for 11.6% of revenues in 2005. So Kanbay’s revenues are not diversified enough.

“We’d like to hear more about how Capgemini is retraining its onshore employees now that it wants 35,000 mostly Indian staff by 2010. And we want to know more about how it will increase its Indian headcount not only in “back-office” work but in higher-value front-office work too. Already, the company is considering addressing some German financial-services clients through a direct Indian channel (echoing a move last year by Accenture) and is also considering the UK market selectively. A good move, we think, although incomplete.”

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