Capgemini to acquire IT services firm Kanbay

Capgemini boosts its services delivery from India with another acquisition

French IT services company Capgemini has entered into a definitive agreement to acquire Kanbay International, an IT services firm in Rosemont, Illinois, to boost its services delivery from India, and its business in the financial services sector. The deal values Kanbay at $1.25 billion.

Capgemini announced earlier this year that India will be the hub for the company's offshore services delivery. The company acquired last month a 51 percent stake in Unilever India Shared Services. That company is the Indian finance and accounting business process outsourcing (BPO) operation of European consumer goods maker Unilever Group. Capgemini said it would take full ownership of the operation, which has significant business from Unilever, by 2008.

Under the terms of the merger agreement announced Thursday, Capgemini will acquire all of the outstanding common shares of Kanbay for cash at $29 per share. The transaction is subject to customary closing conditions, including approval from Kanbay shareholders and anti-trust clearance. It is expected that the transaction will close by early next year, the companies said. Capgemini has also entered into share purchase agreements to acquire 14.9 percent of Kanbay's outstanding shares from certain core shareholders, the company said, without naming them.

Kanbay has about 6,900 staff, of which the majority are in India. The new combined entity will now have 12,000 staff in India by the end of this year. Capgemini had earlier announced that it would be increasing staff to 6,000 by the end of this year, and to 10,000 by the end of 2007.

The acquisition of Kanbay will give Capgemini access to more customers in the financial services industry. Kanbay currently gets a large proportion of its revenue from two of its key investors, banking company HSBC Holdings in London and investment bank Morgan Stanley in New York. Last year, these two customers accounted for about 60 percent of the company's revenues of $230.5 million.