Canada’s CGI Group Inc. [GIB] recently said it has agreed to acquire information technology (IT) solutions provider Stanley Inc. [SXE] in a deal worth $1.1 billion, more than doubling its presence in the United States federal space, particularly serving the defense and intelligence markets where it has just a sliver of business currently.
If the deal closes as expected by the end of this September, CGI Federal will have over $1.2 billion in sales to the U.S. government, with 55 percent of that serving the defense and intelligence customers and the rest in the federal civilian space, according to briefing charts the company posted on its website.
CGI Federal, which is the U.S. arm of CGI, currently has about $350 million in annual sales, 99 percent of that with federal civilian customers. For its fiscal year that ended in March, Stanley expects sales between $868 million and $878 million, up from nearly $780 million in its previous fiscal year.
For CGI, which had $3.6 billion in sales last year, the pending acquisition accelerates its goal of becoming a global leader in IT and business process services, Michael Roach, the company’s president and CEO, said during a conference call with analysts on Friday. The acquisition will give CGI scale to compete for larger contracts and an entr?e to a key market, which is the U.S. defense and intelligence arena, and “solidifies our position” in the $80 billion U.S. federal market, he said.
Roach said the deal will be accretive to CGI’s earnings within a year.
The acquisition will also expand CGI Federal’s capabilities, including advanced engineering and business process management, allowing it to offer its current customers a wider range of services, George Schindler, president of CGI Federal, said on the call. He pointed to Stanley’s capabilities in cyber security and biometrics as a boost for CGI.
CGI Chief Roach also said that Stanley brings with it contracts with long-term revenue prospects, pointing to the company’s recent win of a potential 10-year, $2.8 billion support contract for the State Department’s worldwide visa operations. Stanley will be competing against CSC [CSC] for task orders on that program.
As no task orders have been issued yet under the visa contract, Stanley’s two largest contracts, which combined account for over 20 percent of revenues, are one with the Space and Naval Warfare Systems Command where the company handles communications systems upgrades for Navy submarines and another with the State Department for passport production and related support.
Stanley’s backlog is $2.1 billion while CGI Federal’s is $1.3 billion. With Stanley, CGI will have a backlog exceeding $13.5 billion.