Saturday, 7 November 2009

Capgemini on the acquisition trail again?

(By Richard Holway 6.00pm Saturday 7th Nov 09) Further to our report on Friday of Capgemini’s Q3 IMS , Paul Hermelin (CEO) told the analyst briefing that he now planned acquisitions, particularly in the US. He wanted Capgemini to be in the “Top Five alongside competitors like IBM and Accenture” but they were “currently #19 in the US IT services market”. By the way, Hermelin also told the FT that he thought the price Dell paid for Perot was ‘crazy’. Well, at least we agree on something!

I well remember Capgemini’s last US ‘adventure’ – or should I say ‘misadventure’ – when they bought the consulting business of Ernst & Young at the very height of valuations back in December 1999. Now if there was ever a price that was really ‘crazy’, then the $11.5b they paid would certainly qualify. Looking back at my reports of the acquisition at the time, the raison d’etre then was to put the combined group into the Top Five IT Services Groups worldwide. But the acquisition was pretty much a disaster – mainly because the ‘culture’ of E&Y’s prima donna consultants was just a world apart from the ‘body shop’ T&M consultants that Capgemini had at the time in France and the ‘industrial’ type data centres that Capgemini ran in the UK. It took Capgemini many years to work this through – not helped by the biggest slowdown in IT spend on record post and Y2K.

But Hermelin seems to acknowledge that a big bang approach is unlikely to work this time around either. He talks of a ‘series of acquisitions’ – which is commendable.

One other point of note is that Capgemini will employ more people in India (21,000) than in France (20,000) when their new Bangalore centre opens shortly. Of course, that position was greatly helped by, indeed was built upon, the $1.2b acquisition of Kanbay in Oct 2006. Another acquisition made when the world looked rosy just before a crash. Again, it is interesting to reread Capgemini’s analyst briefing at the time on the announcement of that acquisition when they projected “35,000 staff in India by 2010”. Yet another ambition which is most unlikely to come to pass.

But if Hermelin sticks to the Kanbay size of strategic acquisition in the US, his ambitions of becoming a Top Five player would stand a much better chance of succeeding this time around.

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