Posted by Bill Martorelli on May 31, 2012
CGI’s plan to acquire Logica for approximately $2.6 billion, amounting to the combination of two distinctly regional entities into a single “global” provider, offers further proof of a consolidating globalized service industry — as if we needed any after the series of service industry consolidations during the last few years. This acquisition makes sense for several reasons:
- Geographic synergies: In terms of complementary regional strengths, the two entities could hardly be better paired. CGI is well established in selected vertical domains such as government, financial services, telecom/utilities and others, but it remains a mystery to many customers outside of its native Canada and the DC beltway. Although present in several European locations, CGI registers only 6% of its revenues from Europe, while Logica does not play in the North American market. Not only is Logica strong in its native UK and in governmental circles like CGI, but it also has strong Pan-European presence. Once complete, CGI can legitimately claim to be a global player, although presence in Asia/Pacific remains limited for both entities.
- Competitive benefits: With strong capabilities in both ADM and infrastructure services, Logica’s ongoing financial weakness made it an attractive acquisition candidate. Part of this was due to the unique challenge facing European services players that must fend off not only global players, but also the India-based suppliers, who are active primarily in the English-speaking nations such as Logica’s native UK. Existing Logica customers can take comfort that it will not likely face intensifying financial challenges, while CGI’s customers can take comfort from a generally positive reaction from the investment community.
Clients of both companies should not expect to see much disruption, since both companies operate in different markets, and the global and competitive benefits are likely to result in additional benefits for customers (such as reinforced capabilities in ADM, testing, ERP package implementation, and IT infrastructure management, among others, although these benefits will take time in consolidating). However, it is still early and execution details are still forthcoming. For now, we’re watching this acquisition with interest.