CGI expands into defense market

Montreal-based CGI Group has agreed to purchase information technology business Stanley in order to expand its reach into the US defense contracting market.  Arlington, Virginia-based Stanley provides technology services to military, intelligence and government agencies. The acquisition will make CGI's federal unit a government IT provider with more than $1 billion in annual revenue. Montreal-based CGI created its federal arm, which is headquartered in Fairfax, when it purchased American Management Systems in 2004. At the time, however, the company opted not to buy AMS's defense and intelligence business. Founded in 1976, CGI is Canada's largest technology outsourcing and consulting company, with customers including London-based bank Barclays, the Philadelphia-based insurer Cigna, and US federal government agencies. CGI Federal's revenue last year was about $350 million, of which only a tiny portion was related to defense and intelligence. By contrast, around 75 percent of StanleyÔÇÖs 2009 revenue of $865 million was generated by defense and intelligence work. Post-transaction, CGI Federal will have total revenue of around $1.2 billion, made up of about 45 percent federal and civilian work and 55 percent defense and intelligence work. The company will have about 7,000 employeesÔÇö5,000 of which are Stanley's 5,000 and 2,000 of which CGI FederalÔÇÖs. The purchase will also raise the US share of CGIÔÇÖs total revenue from 37 percent to around 50 percent. Philip O. Nolan, chairman, president and CEO of Stanley, commented: ÔÇ£This is a great transaction for all stakeholders, as it provides Stanley employees with additional growth opportunities as part of a global IT services player and our clients with a powerful combination of highly-skilled employees and additional scale to enhance value.ÔÇØ Donna Morea, CGIÔÇÖs president for US, Europe and Asia, said: ÔÇ£Joining forces with Stanley is a critical element of our US growth strategy. The combination of StanleyÔÇÖs defense and civilian IT and BPO services with CGIÔÇÖs end-to-end capabilities, mission-critical solutions, and strong client relationships cements our position as a player of scale across the entire US Federal Government. ÔÇ£Together, CGI and Stanley are a great cultural fit, sharing deep industry knowledge, a strong commitment to employees, and a reputation for operational excellence.ÔÇØ CGI has said it wants to use acquisitions to tap US government stimulus spending and compete with rivals such as IBM, the worldÔÇÖs biggest computer services company. The companyÔÇÖs chief executive Michael Roach said last year that he was willing to spend C$2 billion ($1.92 billion) on acquisitions. The acquisition is following a consolidation trend by CGIÔÇÖs US-based rivals. Norwalk, Connecticut-based Xerox completed a purchase of Affiliated Computer Services for about $6 billion in February, in order to ramp up its focus on computer services. Texas-based Dell, the third-biggest maker of personal computers, bought Perot Systems last November for about $3.9 billion. The Stanley transaction is expected to close by fall 2010, with CGI saying it should add to profits within the first year. CGI has said it will continue to look for acquisitions within both the US and Europe.