Computer Sciences Corporation acquisition could make sense for CGI Group, says Cormark

While he says has no information about a deal being imminent, Cormark analyst Richard Tse says the acquisition of Computer Sciences Corporation’s commercial businesses “could be compelling” for CGI Group (CGI Group Stock Quote, Chart, News: TSX:GIB.A, NYSE:GIB).

Yesterday, shares of both CGI and CSC were up sharply on rumours that the latter was looking to split and then sell off its government and commercial businesses.

Tse notes that CSC rumours have been flying for months, and that last fall it was speculated that a private equity buyer could be interested in the Virginia-based IT player. He thinks CGI’s expertise at M&A could make a deal work.

“…we believe a potential growth opportunity could be in the commercial market, particularly in the US,” said Tse. “In our view, CSC would have the potential to offer that. In addition, we believe there would be potential for operating synergies given CGI’s disciplined approach to acquisitions.”

Tse thinks a deal done at 1.5x EV/Sales would be accretive to CGI.

Regardless of whether it is Computer Sciences Corporation or not, the analyst thinks CGI Group will make another acquisition in the next twelve months. He cites the success of the company’s pickup of U.K.-based Logica, which he says is tracking ahead of expectations.

Founded in 1959 by Roy Nutt and Fletcher R. Jones, Falls Church Virginia-based Computer Sciences Corporation has more than 90,000 employees in 70 countries. The company, which provided software to the likes of IBM and Honeywell in the 1960’s, has been a Fortune 500 Company since 1995.

CSC has three business service lines; the public sector, where it provides services to the U.S. Department of Defense, Managed Services, and Business Solutions and Services.

In a research update to clients this morning, Tse reiterated his Buy rating and $58.00 one year target on CGI Group.