On Thursday, Montreal’s CGI Group (TSX:GIB.A) announced it would acquire London-based IT company Logica for approximately $3.3-billion.
The deal had Bay Street buzzing and instantly made CGI Group Canada’s most valuable technology stock. The company’s 14% gain Thursday pushed its market cap over the $6-billion dollar mark, past that of Research in Motion and SXC Health.
Versant Partners analyst Tom Liston, who already had a BUY rating on CGI and had raised his target slightly after the Montreal based company reported its Q2 numbers in April, likes the Logica deal. But in a research update to clients Thursday, Liston says he is waiting until all the paperwork is in before he revisits his current $25 target on the stock.
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Liston says the Logica pickup means CGI now has “true global presence”. While he acknowledges that there is risk to a European acquisition, he believes the low multiple CGI will pay is a safeguard.
But Liston points out that the CGI-Logica deal is not a certain as some may assume. Because the deal has no break-fee, he says, there is the “probability of a competing bid”.
If the deal, which is expected to close in September, does goes through it will mean a much more profitable CGI Group. Liston estimates that that pro forma adjusted earnings will $703.7 million, or $2.46 a share, up from CGI’s current $452.6-million, or $1.75 a share. The Versant analyst says investors should also expect revenue and earnings synergies from the deal.
CGI was founded in Montreal in that city’s Olympic Year of 1976. The Company’s name is an acronym for Consultants to Government and Industry. Today’s acquisition is the second major one for CGI in two years. Midway through 2010, CGI picked up Stanley, an Arlington, Virginia based systems integrator for a billion dollars.
Shares of CGI group closed Friday down 2.4% to $23.37.