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Has <keyword id="10863" type="COMPANY" weightage="80" keywordseo="CapGemini">Capgemini</keyword> paid a lot to secure a place in the US, the largest IT outsourcing market, by acquiring IGate? 
 Capgemini has offered to buy <keyword id="2827205" type="UNKNOWN" weightage="80" keywordseo="IGate-Corpfor">IGate Corpfor</keyword> $4 billion funded by internal cash, debt and equity. 
 
This is 3.2 times IGate's annual revenue of $1.2 billion in 2014. 
 
Some of the deals over the last four years, where small and midsized Indian IT companies were bought, the ratio was around 1.6 times. In addition, the deal value is over 15.3 times IGate's earnings before interest, tax, depreciation and amortisation (EBITDA) of $263.9 million in 2014 said The Economic Times. 
 
It is marginally higher than the Bloomberg median of 14.6 for similar deals. This may make the IGate acquisition sound expensive. 
For instance, Patni Computer Services was valued at over Rs 5,560 crore or 1.6 times its annual revenue when IGate acquired it in January 2011. In another deal, Baring Partner valued Hexaware at Rs 3,000 crore or 1.5 times sales during the August 2013 acquisition of the latter. Analysts think that the premium is justified given the IGate's strong foothold in the North American market, which has been the biggest outsourcing market for IT vendors. <keyword id="369645" type="COMPANY" weightage="80" keywordseo="Cap-Gemini">Cap Gemini</keyword> predominantly serves Europe with over 70% revenue coming from the region. After the acquisition, the Europe share will reduce to a half. 
 "Capgemini's EPS (earnings per share) is expected to improve by 12% in CY16 and by 16% in CY17 due to the acquisition. Given IGate's scale and efficiencies, the premium seems to be justified," said Reliance Securities' IT analyst <keyword id="2827206" type="UNKNOWN" weightage="80" keywordseo="Apurva-Prasad">Apurva Prasad</keyword> told ET. 
 IGate's revenue increased at a three-year compounded annual growth rate (<keyword id="107168" type="ORGANIZATION" weightage="80" keywordseo="CAGR">CAGR</keyword>) of 18% in 2014. Net profit available for common equity holders rose at a CAGR of 28.4%. 
 
A look at some of the deals struck a decade ago reveal that valuations were aggressive where the buyers identified operational synergies. 
 <keyword id="43340" type="CITY" weightage="80" keywordseo="Oracle">Oracle</keyword> valued iFlex at 3.5 times sales during the 2005 acquisition worth Rs 3,960 crore ($909 million) at the time. In another deal during 2006, EDS valued Mphasis BFL at 3.5 times sales said ET. 
 
iGate ended the day 3.29 per cent higher on Nasdaq.

Capgemini-IGate: Has Capgemini over paid for IGate?

<ul><li>The looming fear of tech <keyword id="6357067" type="General" weightage="20" keywordseo="Layoffs" source="Orion">layoffs</keyword> in India rose again, after <keyword id="6370971" type="General" weightage="20" keywordseo="Accenture" source="Orion">Accenture</keyword> announced 19,000 job cuts on Thursday. </li><li>Accenture’s earnings are often seen as an indicator of the Indian IT sector’s performance. </li><li>Indian IT companies froze hiring in Q2, with hiring declining by 96% when compared to preceding 7 quarters. </li></ul>In spite of the many startups laying off employees since last year, the Indian IT sector has so far remained resilient. However, the recent announcement by global IT major Accenture that it will cut 19,000 jobs has brought back some of the fears again. “What we have been seeing for the last several quarters is a focus on cost with shorter return time. Everyone wants to be more resilient and [have] lower costs,” said Julie Sweet, CEO, Accenture in a post-earnings conference call. Accenture has opted for retrenchments to drive resilience. “We are trying to cut structural costs so that we are in a better position. We are trying to mitigate the cost by driving efficiency,” Sweet added. Even as the big techs of Silicon Valley chopped thousands of jobs, top Indian IT companies gave no such indications. Yet, in the last few months, they have put sudden brakes on hiring. According to a<a href="https://www.businessinsider.in/business/corporates/news/hiring-by-it-cos-down-96-in-q3-compared-to-preceding-7-quarters-even-as-attrition-cools/articleshow/97023873.cms"> Business Insider India analysis</a>, hiring fell by 96% in the December quarter compared to the preceding seven quarters. Out of the big four IT companies, <keyword id="6357150" type="General" weightage="20" keywordseo="TCS" source="Orion">TCS</keyword> and Wipro actually reported a decline in their headcount during the quarter. Going forward, Indian IT companies could look at Accenture’s layoffs as a ‘blueprint’, says JM Financial. “We see such action as necessary for India IT players as well as a slower growth and falling inflation makes utilisation and pyramid correction difficult levers to pull,” said a report by JM Financial. <cmsannotation type="cmsannotation" annotationid="Other levers available to optimise costs" comment="subhead" text="Other levers available to optimise costs">Other levers available to optimise costs</cmsannotation> Apurva Prasad, vice president of institutional equity research (IT sector) at HDFC Securities told Business Insider India that there are other levers instead of layoffs which Indian IT companies can use to achieve cost optimisation. “There are multiple levers that Indian IT companies can use to achieve cost optimisation – this includes improving utilization ratios, better pricing of existing accounts, and vendor consolidation,” said Prasad. For context, Accenture’s utilisation rate stood at 91%, which is significantly higher than companies like <keyword id="6354512" type="General" weightage="20" keywordseo="Infosys" source="Orion">Infosys</keyword>, which reported a 81.7% utilisation rate during the December quarter. In such a scenario, putting the bench to work would be better, Prasad explained. In Accenture’s case, global brokerage Jefferies said layoffs are a result of over-hiring during the pandemic, while Bank of America’s analysts underlined that the rise in jobs was facilitated by cheap capital. “Headcount reduction is a result of over-hiring during the pandemic and a slower growth outlook than originally forecasted,” Jefferies said in a note. Now that growth prospects have tapered and interest rates have risen sharply, companies are realigning their headcounts to match the current macroeconomic realities. <cmsannotation type="cmsannotation" annotationid="Banking woes bring troubles to BFSI spends" comment="subhead" text="Banking woes bring troubles to BFSI spends">Banking woes bring troubles to BFSI spends</cmsannotation> The banking, financial services and insurance (BFSI) segment, which is one of the major revenue sources for Indian IT companies, has seen a cutback in discretionary spendings. The troubles at four banks in 11 days, including Silicon Valley Bank and Credit Suisse, will drive BFSI clients to “focus on current survival rather than investing for future survival,” said a report by Kotak Institutional Equities. “Surviving the current crisis, and ensuring adequate liquidity and capital adequacy will emerge as the top focus, leading to prudence on spending,” the brokerage said, adding that tech budgets outlined at the beginning of the year could be toned down. It added that the deteriorating macroeconomic environment could lead to further polarisation of growth between leaders and laggards of the Indian IT sector. “TCS and Infosys are better positioned among Tier 1 IT. Cognizant and Wipro are vulnerable among Tier 1, higher consulting exposure increases vulnerability for the latter,” the Kotak report added. Overall, cost optimisation has emerged as a theme now with deteriorating macroeconomic environment, Prasad explained. It remains to be seen how Indian IT companies achieve this, hopefully without resorting to retrenchments. SEE ALSO: <a href="https://www.businessinsider.in/careers/news/first-82-days-of-2023-see-more-layoffs-than-the-entire-2022/slidelist/98960848.cms">First 82 days of 2023 see more layoffs than the entire 2022</a> <a href="https://www.businessinsider.in/business/news/debt-schemes-of-mfs-lose-edge-over-bank-deposits-as-budget-proposes-to-scrap-ltcg-indexation-benefits/articleshow/98965932.cms">Debt schemes of MFs lose edge over bank deposits as Budget proposes to scrap LTCG &amp; indexation benefits</a> <a href="https://www.businessinsider.in/business/corporates/news/shinier-zomato-gold-better-commissions-makes-analysts-bullish-in-the-long-term/articleshow/98938279.cms">Shinier Zomato Gold, better commissions makes analysts bullish in the long term</a>

Layoffs coming to the Indian IT sector? Analysts say Accenture’s jobs cuts offers a ‘blueprint’

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Capgemini-IGate: Has Capgemini over paid for IGate?

BI India Bureau

Layoffs coming to the Indian IT sector? Analysts say Accenture’s jobs cuts offers a ‘blueprint’

Rounak Jain

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