After all this years of lying low in the M&A game, Infosys Technologies is creating biggest ever buzz in India’s overseas M&A history. Bangalore-based IT giant is rumoured to be interested in buying (or merging with) European IT consulting giant Capgemini. The rumours of Infosys planning a bid on Capgemini had reached the trading floors of Europe, and the latter’s stock price rose 4.6 per cent at 53.78 euros. It can be speculative, since both the companies have vehemently denied any such moves, but the thought of $3-billion Infosys buying the $10-billion Capgemini itself is interesting.

Infosys has always talked about making a “marquee acquisition”. Is it this one?

Apparently Infosys, which has a struggling consulting business, wants to have a large size in this space in order to compete with the IBMs and Accentures of the world. If the merger happens, the combined revenue strength of Infy-Capgemini will be about $13-14 billion. That’s not bad. Currently, Infosys’s revenues from consulting business is only Rs 213 crore (under 2 per cent of total revenues), and it has incurred a loss of Rs 111 crore on this.

Analysts have a mixed response about such a move. The operating margin of Infosys is at 27.57 per cent while for Capgemini it is at 5.8 per cent. Infosys has a topline growth of 28-30 per cent (in dollar terms), while Capgemini has projected an 8 per cent growth in 2007. It remains to be seen how it will end up after combining both.

The next question will be does Infosys has the stomach to undertake such a large acquisition? Although it’s the poster boy of the Indian IT sector, Infosys has been very conservative in making acquisitions. Integrating both will be a challenge. These questions remain only if Infosys finally buys Capgemini. Will it? Only time will tell.

Posted on 06/29/07, 8:43 AM
in: Main Page, Mergers & Acquisitions, Technology
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