In an all-cash deal, Capgemini is offering $29 per share, which works out a 16% premium over Kanbay’s closing price on Wednesday. Kanbay is valued so highly because it is one of a number of mid-size services companies that are headquartered in the US that have established large offshore sourcing arms to deliver low-cost applications development and support services.

The advantage that vendors such as Kanbay, and stock market darling, Teaneck, New Jersey-based Cognizant hold over their India-based competitors, is that their local market knowledge and presence usually makes it easier for them to build up their client-facing sales and consulting teams, and western clients often feel that some of the stigma associated with offshoring is removed if they outsource to a company based in their own country.

Rosemont, Illinois-based Kanbay has some 6,500 employees, around 5,000 of which are based at three Indian development centers in Pune, Hyderabad, and Chennai. As a result, the company made an operating profit margin of 12% in its most recent quarter, which is a relatively high level for a western services firm. In contrast, Capgemini’s margin was 4.8% in the first half of this year.

Like all big international services vendors, Capgemini has been attempting to build up its global sourcing network in order to improve its bottom line and to be able to compete on price against India’s fast-growing services suppliers. The company had about 21,000 of its 61,000 staff based at what it calls Rightshore locations, including some 7,000 in India.

Capgemini had stated previously that it was aiming to have 10,000 people in India by the end of the year, and it added a further 600 staff in the country following the takeover of Unilever back office division Indigo in September. Capgemini said that following the Kanbay deal, it would have 12,000, or 16%, of its total workforce based in India.

Raymond Spencer, Kanbay’s chairman and CEO at Kanbay, said Capgemini is aiming to have a total of 35,000 employees in India by 2010. He said he expects the takeover to be completed in the first quarter of 2007.

Kanbay provides IT consulting, application development and management and systems integration services, with a strong focus on the financial services sector and HSBC a major account. The company raised in a Nasdaq flotation, and its shares have performed strongly, rising more than 50% since the beginning of the year.

Kanbay itself is in the process of integrating an acquisition, having agreed a $165m cash and stock deal to acquire Miami-based services firm Adjoined Consulting in February.

Both Capgemini and Kanbay also announced results for third quarter. Capgemini, which did not disclose profitability figures, said its sales rose 13.5% at constant rates to 1.67bn euros ($2.1bn), driven by 20% growth in its outsourcing business and a 29% increase in the UK and Ireland.

Kanbay’s revenue shot up to $114.1m from $59m in the year-ago quarter, driven by a $36m contribution from the Adjoined Consulting acquisition, which Spencer said had been integrated ahead of schedule. Net profit rose 12% to $9.7m, and the company said it is on target for full-year 2006 sales of $413m.