Genpact Acquires Headstrong

Genpact acquired Headstrong for $550 million in cash.

Headstrong revenues for 2010 were $217 million. Genpact’s were $1.26 B. So unlike iGate’s acquisition of Patni, this isn’t remarkable in the minnow-swallowing-whale fashion.

Nevertheless, the acquisition is a sensible one. It is largely complementary in that Headstrong is mostly about IT Services to Capital Markets. Very little overlap with Genpact. Again, unlike iGate-Patni, this was about complementarity, not about achieving scale.

Genpact had to bulk up its IT Services business. IT Services offers both higher margin and higher growth. Both of which Genpact has not been able to deliver, at least to the satisfaction of investors whose expectations are benchmarked to the early days of the IT Services industry.

Genpact’s sophistication in BPO means that most of their growth comes from solutions where IT applications must be implemented or reengineered. Headstrong will bring them a lot more credibility, especially with custom applications.

And finally, even if the IT and BPO work are not joined at the hip in the same solution, having both offers cross-sell opportunities.

A few months back I had written about Cognizant’s rumored interest in Genpact. Eventually, nothing came of it. But I thought that that would have been a very good combination. Sort of a dream team – the fastest growing services company and the best BPO company.

Obviously, I don’t know whether the rumors were true or not, or what transpired if indeed there were serious discussions. But if I were to go out on a limb, I would say that they did have discussions. Maybe they didn’t agree on the price, maybe there were disagreements about the future of the combined company. Whatever the reason, the deal did not go down.

Which left Genpact in the position of being the leader in BPO, an industry that was very promising in the future, but an underachiever in the present. They had to do something to fix that. And so they acquired Headstrong.

This is a good time for bankers in the Offshore services industry. More transactions are to be expected. Watch this space.