Jefferies downgrades IGATE after acquisition by Capgemini

On Monday Jefferies issued a company report on IGATE Corp IGTE after the announcement that the company was acquired by CAP Gemini SA CAP for $48 per share. Jefferies downgraded IGATE from Buy to Hold and raised their price target from $44 to $48.

Jason Kupferberg and Amit Singh, analysts at Jefferies wrote, “While we believe in the long-term fundamentals for IGTE, the company's recent performance on top-line and margins has been choppy, as the company ramps-up large deals won in the recent past. Moreover, the company recently faced a rate-negotiation at a top-5 client. We believe Capgemini's experience with winning/ managing larger deals would not only be beneficial for IGTE to maintain the momentum of winning larger deals, but also ramping up the deals with low volatility to margins. IGTE's mgmt also believes that in the current market environment, a bigger footprint in digital, analytics, and SMAC stack is required (which CAP provides to IGTE) to be competitive.”

"In Capgemini, we have found a partner that will advance our ability to innovate and build industry solutions that will enhance the value proposition we bring to our clients. In addition, this powerful combination will provide exciting opportunities for our employees to expand their capabilities," IGATE CEO Ashok Vemuri said in the statement.

Jefferies believes that the acquisition will increase Capgemini’s North American exposure to 30 percent of the combined group. Furthermore the deal will result in 100,000 of its 190,000 employees to be based in offshore delivery centers. This should make Capgemini more competitive especially with other Indian IT service firms that are gaining market share.

Currently shares of IGATE are trading at $47.43, up 3.45 percent.
Currently shares of Capegemini are trading at $84.54, up 7.87 percent.