Following the integration of this acquisition, North America will account for just under a third of Capgemini's global business volume. Capgemini is paying 15x to 16x EBITDA to acquire WNS, which represents a slight premium compared to its valuation of 11x to 13x EBITDA over the past 12 months, but significantly less than its five-year average of 18x EBITDA.
Formerly valued at a multiple higher than its peers, such as EXL, the former British Airways subsidiary has fallen behind recently, with its valuation adjusting to the sector average. The group took advantage of this sudden loss of investor interest to launch a share buyback program.
In terms of valuation based on cash profit, also known as free cash flow, Capgemini is paying 33x the latter to acquire WNS. The Indian group says it expects growth of between 7% and 11% for the current fiscal year; it will be interesting to see whether these promises are fulfilled.
The momentum of recent years raises questions, if not suspicion. Despite 42% revenue growth over the period, cash flow has stagnated for six years and has even declined slightly, no doubt due to fierce competition from both Indian rivals and large international consulting groups.
The market has reacted rather badly to the news, with Capgemini shares losing over 5.5% in early afternoon trading. As MarketScreener recently pointed out, the French group has been pursuing a very aggressive external growth strategy for several years, with value creation remaining questionable.
