Canadian IT services and business process services firm CGI Group announced on Thursday, May 31, that it has made an all-cash offer of US$2.6 billion (£1.7 billion) to acquire its larger European competitor Logica, in an effort to expand its presence in Europe. The consolidation of the two companies is expected to make a powerful IT services player with a notable presence in North America, Europe, and Asia.
As the industry has become increasingly more competitive and globalized, scale is a key factor in cost competitiveness and service, said the two companies. Logica's main European markets are currently facing an uncertain economic state, which impacts on confidence and demand from both private and public clients.
Numbers
CGI claims to have 31,000 customers using its services, located in Canada, the United States, Europe, and Asia Pacific. Meanwhile Logica's client base focuses mainly on enterprises, public sector groups and utilities, with customers including Shell and the UK's Serious Organized Crime Agency. As of March 31, CGI's annualized revenue was about C$4.3 billion (US$4.2 billion), with an order backlog of roughly C$13 billion. Logica reported revenue of £3.9 billion for the twelve months ended December 31. After the consolidation, the emerging company will employ roughly 72,000 professionals in 43 countries, with revenue of C$10.4 billion.
Logica forecast earlier this month that 2012 revenue could increase or drop by no more than two percent, while its operating margin will remain above 6.2 percent even in tough market conditions. According to Logica, its top 50 clients last year accounted for 44 percent of its revenues.
Tough Times for IT Services
The acquisition, however, comes at a time when services companies, including low-cost Indian providers, are facing a sluggish growth in the market in light of Europe's debt crisis and U.S.' slow recovery. Back in April, tech research firm Gartner said the IT services market would grow by 1.3 percent to US$856 billion this year, compared to last year's 6.5 percent growth.
Logica has pioneered a number of groundbreaking technology services in its decades of operation, including the automated ticket system for the London Underground, creating and running much of the clearing for UK and European mobile text messaging, and other. Over the last decade, however, the company has been through some rough times, including profit warnings, and has divested several operations, such as selling its telecoms assets to Atlantic Bridge Ventures in 2007. Logica's board of directors has now unanimously agreed to recommend the sale to its shareholders, and the acquisitions will be made through CGI's European subsidiary.
