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Capgemini Takes a Big Bite of Brazil IT Services with CPM Braxis Deal

Capgemini Takes a Big Bite of Brazil IT Services with CPM Braxis Deal
Capgemini's CEO Paul Hermelin (l) is joined by Mr. Rossi and Mr. Shpilberg from CPM Braxis to talk about last week's deal.

In what is sure to be one of the biggest blockbuster deals of 2010 in Latin America IT services, worldwide sourcing superpower Capgemini revealed just how much Latin America means to its global vision by acquiring a controlling stake in Brazil’s CPM Braxis last week. (Astute readers may remember Capgemini’s own David Poole forecasting the company’s destiny in Brazil several months ago.) Capgemini is essentially jumping aboard a fast-moving locomotive –  Brazil represents about half of all of LatAm’s IT services market, and it continues to clock double-digit annual growth rates.

Read on for an exclusive view into the origins of the deal, what’s in store for CPMBraxis and how Capgemini is ramping up to become one of the preeminent forces servicing both domestic Latin America customers and as a Nearshore partner for U.S. corporations.

A Surprise Move

For starters, few of those who are close to the Brazil outsourcing industry expected that CPM Braxis would be open to surrendering a majority share or even consider “selling” any part of the firm, having only established the company a few years ago. But, according to David Shpilberg, vice chairman and co-founder of CPMBraxis, Capgemini approached CPMBraxis originally and it was largely because Shilberg had a long association with Capgemini’s CEO Paul Hermelin that the talks began to take shape. “Remember we were not for sale,” said Shpilberg in an interview with Nearshore Americas. “We were raising money directly from private equity .. I have a long relation with Paul dating back to my days with Ernst and Young.” (Shpilberg is a member of Nearshore Americas’ Power 50 Ranking for 2010.)

Capgemini’s pursuit of CPMBraxis was largely based on a single reality – it had a very small presence in Brazil and had to often rely on secondary partners to provide services to customers, most of whom are large multinationals. (Capgemini currently has about 2,600 employees in five Latin American countries, including Argentina, Guatemala and Chile.)

Ross Tisnovsky, Vice President of Research at the Everest Group, was surprised by CPM Braxis’ decision. “CPM seems to be independently oriented and I thought they would try to stay independent,” said Tisnovsky. Capgemini is paying $298 million to obtain the 55% share, and the company has an option to purchase the remaining 45% between three and five years later.

Tisnovsky praises Capgemini for increasingly becoming the model of the globally distributed services players – having established solid hubs around the world. The firm has 56,000 employees in Europe, followed by close to 30,000 in Asia-Pacific and – with the CPM Braxis holding – about 8,100 in Latin America, which is just a bit more than the firm has in the U.S. Tisnovsky contrasts the positioning of Capgemini to many of the India-based players, who he argues will always maintain their operational base in India. “India companies are fundamentally focused on India, the core of the business will always there.  Capgemini has not always been focused on a core geography,” he says.

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Among the keys to the deal were, according to Shpilberg:

  • The current CPMBraxis leadership will stay in place, led by CEO Jose Luiz Rossi
  • Capgemini capitalizes on CPMBraxis’ strength in remote infrastructure management, where technicians can constantly analyze the functioning of IT infrastructure for clients. (A thriving business for Nearshore customers.)
  • Capgemini acquires key accounts in the financial services area as well as telecom and manufacturing, while leveraging its existing relationships in utilities where CPMBraxis had little exposure.

In interviews following the news last week, Capgemini’s Hermelin made it clear that expanding market share in Brazil is not an easy task. IBM (which arrived in Brazil close to 100 years ago), Accenture, HP and Dell are all active and have the technican acumen and capital firepower to continue building formidable businesses.

Looking forward, Shpilberg anticipates an “acceleration in cloud services” for the newly combined provider.  One of the weak points in the portfolio of many (but not all) Brazilian IT firms has been a slow-to-ramp-up cloud strategy as we outlined in these pages several months ago. As competition continues to heat up among the three key IT services groups in Brazil – a) large multinationals b) domestic incumbent providers and c) India-based providers – there will undoubtedly be an increasing awareness of which group has portfolio shortcomings and how to attack that from a strategic position.

“Our goal has always been to become a top ten player,” said Shpilberg. With the stroke of a few pens, that goal is now reality.

About Kirk Laughlin

Kirk Laughlin is an award-winning editor and subject expert in information technology and offshore BPO/ contact center strategies.
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