In a bid to speed up its growth in India and strengthen its position in finance consulting, Europe’s largest IT consultancy company Capgemini would acquire Kanbay International, the technology services group, for a sum of $1.25 billion.

The deal is expected to accelerate Capgemini’s long-term margin recovery plan. With the market banking on a 2008 operating margin, the IT consultancy major looks at topping that and lift its margin above 10 per cent.

The company had been eying a large deal to boost its growth in India, as part of it efforts to strengthen the margin of its outsourcing business and of its North American operations. It had been reported earlier that Capgemini had bought out a 51 per cent stake in the BPO unit Unilever India Shares Services.

Meanwhile, industry watchers feel that the buyout deal looked expensive. However, they agreed that it was not out of step with recent deals in India. There also have been opinions that a part of the acquisition could be funded through raising 500 million euros in equity, which would somewhat limit the accretive potential of the deal.

Capgemini will pay $29 per share in cash, representing a premium of 15.9 per cent to Kanbay's closing share price on October 25. Kanbay boasts of a market capitalization of $975 million. The deal, according to experts, valued Kanbay at 2.5 times the 2007 revenue and 27 times earnings.

Capgemini shrugged off forecasts, meanwhile, by posting a 13.5 per cent increase in sales during Q3. However, its stock lagged on the bourses.

The buy out is likely to boost the company’s earnings per share by more than 5 percent in 2007 and 10 percent in 2008 and triple Capgemini's workforce in India to some 12,000 people. With this India is expected to become the group's second-largest country, accounting for 16 percent of total headcount.