This morning, CGI Group announced it had made an offer to acquire Affecto, a data analytics firms based in Finland, for $146-million.
“The offer to merge with Affecto aligns with CGI’s plan to profitably double the company in five to seven years through a combination of acquisitions and organic growth,” said CGI CEO George D. Schindler. “In turn, for the benefit of our respective clients, CGI brings Affecto depth and end-to-end capabilities, including access to a network of global and onshore delivery centres, robust intellectual property portfolio, managed services, and high-end IT [information technology] consulting. We will continue to implement an established build-and-buy strategy that adds to our strength in the Nordics and around the globe.”
Young, who describes the pickup of Affecto as a “small tuck in” acquisition, says the deal makes sense from a numbers perspective.
“CGI Group currently trades at 9.8x EV/EBITDA and 15.7x PE based on our calendar 2018 estimates,” the analyst explains. “This is a premium to the peer average of 8.9x and 15.1x but a discount to Accenture, which trades at 12.7x and 19.9x, respectively. We believe large cap Canadian tech scarcity value and an active NCIB (renewed for 2017 and likely to be active in the absence of M&A) limit downside.
Young says the deal will work for CGI business-wise, too.
“Affecto has long-term customer relationships with a large number of essential Northern European companies and public institutions,” he notes. “Affecto has a strong local presence with 18 offices and 1000+ employees, who would all join CGI, and would benefit from CGI’s global footprint to expose Affecto’s products and services to larger-scale opportunities which would not previously have been accessible.”
In a research update to clients today, Young maintained his “Buy” rating and one-year price target of $74.00 on CGI Group.
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