MW Spotlight | CGI Group to Acquire Logica PLC

May 31, 2012

Transaction Analysis

CGI Group Inc. (NYSE:GIB) to acquire Logica PLC (LSE:LOG)

Financial Overview:

Equity Value: £1.7B ($2.6B)
Enterprise Value: £2.0B ($3.1B)
EV/Revenue: 0.5X
EV/EBITDA: 7.6X
Transaction Structure: Stock and Debt

martinwolf Analysis:

CGI Group Inc. (NYSE: GIB), a leading global provider of IT and business process services, has made an offer to acquire Logica PLC, a business and technology services consulting and outsourcing company, for £1.7B ($2.6B USD).
CGI has major clientele in North America compared to Logica's European and Asian focus, providing a significant geographic expansion to CGI. Post-acquisition, CGI will have more than 70,000 employees and should be well positioned to play a dominant role in the IT services space.
The acquisition is expected to be immediately accretive in the range of 25-30% to CGI's EPS excluding acquisition-related and integration costs. In addition, recent trading shows that the market strongly supports the deal, with CGI Group, Inc. stock up over 10% in intraday trading.
The offer, at close to a 60% premium to Logica's closing price on 5/30/12, is significant because it shows Logica's value to CGI is much higher than it is to Logica itself. This concept was addressed by Marty Wolf in our latest Valuation & Deal Insights (VDI) newsletter where he discusses identifying the best owner of an asset in order to maximize value.
If completed, the Logica acquisition would be another bold move for CGI, following its August 2010 acquisition of Stanley, Inc, an IT services and solutions provider to the US Federal Government, for $1.1B.
Consolidation to increase scale continues in the IT services space. Recent examples include Tech Mahindra's agreement to acquire Satyam Computer Services and iGate Corporation's acquisition of Patni Computer Systems Limited. To compete against the larger firms in the space, companies either have to increase their scale or get acquired. Scale is paramount for all players in this space to help control profit margins as pricing compression continues.
martinwolf expects more consolidation to follow as first movers typically receive the highest price. Current market conditions currently present favorable buying opportunities for buyers with the means to consummate transactions.

Please go here to read the press release.

martinwolf was not the adviser in this transaction.

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contact Tim Mueller tmueller@martinwolf.com

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