Geometric Acquires European Firm 3Cap

The outlook for the Indian IT industry has deteriorated in H1FY13, and Q3 continued to be affected by subdued global macroeconomic trends taking a toll on IT spending and delaying decision making. During the quarter, the BSE IT index declined by 4.03%, while the Sensex rose by 3.54%.

Of late, IT companies are increasingly veering towards inorganic growth to fuel their performance. Using acquisitions in order to widen geographical presence, industry expertise and service offerings seems to be the consideration. Recent deals include Infosys’ acquisition of Lodestone and Cognizant’s acquisition of six C1 Group companies, among others.

On Jan 2, 2013, Geometric, a leading specialised engineering services provider, announced that its German subsidiary, Geometric Europe GmbH, has acquired a 100% stake in 3Cap Technologies GmbH (3Cap) for 11 million euros (approximately Rs 78 crore). Of this amount, 7.5 million euros would be paid upfront and the balance would be subject to earn-out under mutually agreed terms and conditions over a period of 3 years.

Geometric is a leader in Product Lifecycle Management (PLM), Global Engineering Services and Outsourced Software Product Development (OSPD) solutions and technologies. 3Cap is a specialist in electronics engineering, primarily for the automotive industry. 3Cap has 110 employees and 7 customers which are mostly tier-1 automotive suppliers. Geometric’s key verticals being engineering and automotives, this acquisition fits in perfectly for the company. Moreover, it has been looking at expanding its presence in Europe, which currently contributes to 18.4% of its total revenues.

Commenting on the acquisition, Manu Parpia, Managing Director & CEO, Geometric, said, “The use of embedded systems is increasing in all our customer products. This acquisition fills a major gap in the solutions we offer to our customers”.

Overall too, embedded systems are relatively hot as compared to other offerings, Parpia suggested. The demand for these services has been high, and this makes the acquisition valuable. Moreover, 3Cap’s positioning would help Geometric expand its service offerings to existing customers. Considering the strategy of Geometric and the fact that 3Cap is a company with specialised operations, the acquisition fits in well, he said.

The acquisition is effective from January 1, 2013, which is when it would start garnering revenues for Geometric. The annual revenues of 3Cap amount to a tad less than 7% of Geometric’s revenues. More than lateral addition of revenues, Geometric would largely benefit from an expansion of offerings and cross-selling, giving it a larger advantage.

We, at DSIJ, have maintained that considering the current scenario in the Indian IT industry, we are relatively bullish on companies that have able to adapt, adopt an inorganic growth model and specialise offerings in certain verticals. Considering this, we have a relatively better outlook for Geometric than for other IT companies.