Capgemini’s announcement that they have an agreement to acquire iGate is the most recent evidence that the consolidation pace in the services market is picking up. Slowing growth, collapsing margins, and availability of capital with interest rates close to zero are only intensifying the M&A activity. How will the consolidation happen? And which service provider will be acquired next?
At Everest Group, we believe there are three likely scenarios that answer these questions.
- Certainly we expect the big to get bigger. We expect the French (CGI, for example) and Japanese providers to continue to grow through acquisition. CSC put itself up for sale at least once in the last year, and that’s likely to happen again. We think Atos and Capgemini have completed their acquisition activities.
- We also expect the Indian firms to play a more prominent role in the consolidation activity. Cognizant has demonstrated it’s in the market and will likely strike again. Wipro, Infosys and TCS certainly have the capital to move, and we may see some of these players combining.
- And finally we expect some smaller firms to acquire one another and build scale. Potential market consolidators are bound to view EPAM, EXL, Virtusa and WNS as targets. And Syntel is not too big to be sold.
One of the most interesting scenarios to watch will be what happens with Genpact. They must take a “go big or go home” strategy. If they go big and become acquisitive, they will likely buy one or more IT firms. Short of that, Genpact isn’t too big to be sold and will become a highly attractive candidate for acquisition.