Capgemini CEO: iGate Best Option To Push Into U.S. Market, Others 'Unstable'

Of the companies Capgemini evaluated when looking to push into the U.S. market, some were too "unstable," others were too invested in digital and iGate was just right, Capgemini Chairman and CEO Paul Hermelin said on a call with media and analysts about the solution provider's blockbuster acquisition.

Earlier Monday, Paris-based Capgemini, No. 5 on CRN's 2015 SP500 list, announced plans to acquire iGate, a Bridgewater, N.J.-based solution provider focused on integrated technology and operations-based services, for $4 billion. The move was part of a strategic push by Capgemini to ramp up its operations in the North American market, bringing it to 30 percent of total expected revenue.

Over the past 18 months, Hermelin said, the company seriously evaluated 10 to 15 opportunities for acquisition before finally choosing iGate. He said iGate was the right size, and had complementary clients and offerings and a compatible company culture. Capgemini wasn't the only company interested in iGate, according to April reports from the Business Standard, which said French competitor Atos was also in the running.

[Related: Capgemini To Acquire iGate To Take On Top U.S. Solution Providers]

The challenge with finding the right match, Hermelin said, is that many North American competitors fell into one of two areas: in need of a turnaround or too high of a value. For different reasons, Hermelin called both of those types of companies "unstable." While Hermelin didn't name names, reports this winter had named CSC as a possible takeover target for the solution provider. CSC declined to comment at that time, and then again declined for this report.

While turnaround targets are cheaper and work when planning for a big company restructure, Hermelin said, they aren't favorable to Capgemini investors.

"If I talk about targets in the U.S., you have some companies that are in trouble, ... but they are very unstable, and usually these are the ones that are destabilized by the cloud disruption. My gut feeling when looking at several of those is that the speed of the client was faster than the management imagined," Hermelin said. "We looked at a few, and it didn’t look right."

On the flip side, Hermelin said, high-value solution providers focused on digital and cloud technologies bring strong capabilities to the table, but said the company found them to be expensive, challenged with retention and also "unstable." While Capgemini still wants to invest in those areas of the market, Hermelin said, he believes the company will be better off investing slowly and developing the solution sets.

"We looked at some companies in the digital space. My view is these people would not easily join a company like Capgemini. It’s a different style, ... but I think we have to invest. You will see us probably investing in small pockets and you will see us investing and preparing solutions," Hermelin said.

Hermelin said he believes Capgemini will make a strong showing in both the North American and SMAC (social, mobile, analytics and cloud) markets, the latter of which grew 22 percent year over year in the company's first-quarter earnings. North American revenues were up 11.7 percent in the first quarter, compared with a 10.5 percent increase overall.

"These are fast-growing segments. We knew we have to invest there. We know we need more presence there," Hermelin said. "We are definitely interested in these capabilities."

PUBLISHED APRIL 27, 2015