Capgemini eyes acquisition in India

By Dominique Vidalon and Santosh Menon

PARIS (Reuters)- Capgemini (CAPP.PA: Quote, Profile, Research, Stock Buzz), Europe's largest computer consultancy, is talking to several smaller Indian IT players to bolster its growth, but is not sure that a deal can be sealed this year, its chief executive said on Wednesday.

"India is very exciting. IT developments are national pride. I think that we are doing extremely well (there) but a consolidation would help us," Paul Hermelin told the Reuters Global Technology, Media and Telecoms Summit.

"We are talking with several Indian companies," he added.

Capgemini, which employs about 4,000 people in India, was the European company that was "moving the faster" in India, recruiting 400 people a month.

"I think it is stretched compared to our size. So an acquisition that would increase the base, would stabilize the operation," he said.

Capgemini has previously said it will need 14,000 information technology (IT) staff in low-cost countries to serve its customers by the end of 2008.

Companies are increasingly outsourcing office tasks to India, which offers low-cost, skilled software professionals, and global technology companies such as IBM (IBM.N: Quote, Profile, Research, Stock Buzz), Accenture (ACN.N: Quote, Profile, Research, Stock Buzz) and EDS EDS.N

Earlier in the day Cagemini's smaller rival, Atos Origin, (ATOS.PA: Quote, Profile, Research, Stock Buzz) said it was also looking to make acquisitions in India and planned to increase its staff there to 2,500 by the end of 2006 from 1,500 now.

Hermelin said that potential acquisition targets in India would mainly include IT services companies. But Capgemini could also buy business process outsourcing (BPO) companies, though not those which only had call center operations.

"We will look at non-voice BPOs," he said.

India's top three IT services companies -- TCS (TCS.BO: Quote, Profile, Research, Stock Buzz), Infosys (INFY.BO: Quote, Profile, Research, Stock Buzz) and Wipro (WIPR.BO: Quote, Profile, Research, Stock Buzz) -- enjoy very high valuations, which makes them unattractive targets.

But Hermelin said there were many smaller players which did not quite enjoy the same stock market multiples, reflecting a slower pace of growth compared with their larger peers.

"Progressively their value has become more affordable. Some people think the gap is widening and whether they can catch up (with their larger peers)," he said.

However, he added that none of these companies were under pressure to do deals.

"None of them are desperate. Which is why the conversation will take long," he said.