Size Matters!! Possibility of Cognizant’s acquisition of Genpact.

There is a rumor in the industry circles for possible acquisition of Genpact by Cognizant.

Onwards to the possibility of a Cognizant-Genpact combination. Why might this be a very good combination? Lets look at the reasons:

The businesses are very complementary. Genpact is less than 15% IT Services. Cognizant is 5% BPO. The lack of overlap means a few things, all of them major factors:

• In one stroke Cognizant as the acquirer becomes one of the largest and most sophisticated BPO service providers. In addition to already being a large high-growth IT Service providers.
• One of the worries in Services acquisitions is that you will end up offering the same services at the same clients at different rates and then the client will move all services to the lower of the two rates. That overlap is going to be minimal in this case.
• The senior teams of both companies will find homes in the combined company. In the medium term they should not have to merge leadership of business units.

General thinking is that the BPO culture is quite different from the IT Services culture and that will not bode well for a merger. I can’t see why they would think this. Both companies have a dynamic, growth-oriented culture and have professional management.

Also, on a related matter, both Genpact and Cognizant are listed in the US with no float in India. This makes things easier. Acquiring a company 100% in India is a little messier, procedurally.

The fact that GE is 40% of Genpact’s revenue is known and will be priced in to the acquisition price, post due diligence.

The rumor may or may not be true and even if it is true, the deal may or may not happen. But on the face of it, it makes sense. The combined company will be on target to be the second largest in the Offshore industry after TCS within less than a year based upon projected growth rates.

And in this industry size matters.