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  • 1. TBR T E C H N O L O G Y B U S I N E S S R ES E AR C H , I N C . TBR SPECIAL REPORT CGI announces its intent to acquire Eurocentric IT services vendor Logica to expand its presence in the region Cassandra Mooshian, Professional Services Practice Analyst (cassandra.mooshian@tbri.com) June 8, 2012Successful integration of CGI and Logica will diversify revenue among geographies andverticals for the new companyOn May 31, 2012, CGI announced its intent to acquire Logica, a U.K.-based IT services provider, by the end ofSeptember 2012. Logica will add 42,000 professionals and annual revenue of $6.3 billion (both figures are as ofDec. 31, 2011). Logica has offices in 36 countries, and although it is heavily Eurocentric, is expanding its offshoreservice delivery footprint. With a tendered offer of $1.61 per share, CGI proposes to takeover Logica for $2.6billion, or £1.7 billion, to strengthen and supplement its abilities to serve existing customers in Europe whileenticing new customers in the region and adjacent areas. CGI CEO Michael Roach stated on May 31 that, “two-thirds of our biggest clients are in Europe, and we need to be there too or [we] risk losing them,” indicating a pushinto the Eurozone by acquisition will be the most immediate way to extend its presence beyond North America tobetter reach its customers. Europe accounted for 90.4% of Logica’s $6.3 billion in revenue in CY2011, or $5.7billion, compared to CGI’s revenue of $168 million (TBR estimate) from the region. As such, the acquisition willprovide CGI with a significant increase in its European customer base and backlog, and add substantial personnelresources, approximately 33,000, to CGI’s 2,000 employees in Europe.TBR believes the acquisition is coming at a steep discount for CGI; the company is paying $2.6 billion, or just 41.3%of Logica’s annual revenue for CY2011 – a much lower figure than the typical asking price of 150% to 200% ofannual revenue – due to persistent economic uncertainty in Europe. The Logica acquisition comes on the heels ofHP’s $10.2 billion acquisition of U.K.-based software vendor Autonomy. TBR believes this indicates an inherenttrend is forming in the North American-based IT space, as providers take advantage of the unfavorable marketconditions in Europe to obtain deals on large, strategic acquisitions of European firms that expand their footprints.CGI’s acquisition of Logica will complement its offerings and delivery capabilities and help diminish geographicborders between Europe and North America, enabling the company to capitalize on the region’s $250 billion ITservices industry. Customers in EMEA, particularly in Western Europe and other emerging markets, value vendorswith a local presence and an understanding of unique regional business challenges.
  • 2. TBRIn recent months, Logica has taken steps to diversify away from its Eurocentric model by expanding headcount inoffshore locations while reducing headcount in the U.K., Benelux and Sweden to improve margins. The company istaking more of a blended delivery approach, hiring in APAC, Eastern Europe and Morocco, such that 17% of itsemployee base was located offshore as of the close of CY2011. TBR believes CGI’s acquisition of Logica will not onlyassist the firm’s expansion in Europe and surrounding regions, but will benefit Logica’s global footprint and brandawareness, smoothing out both companies’ dominant exposures to their home geographies and paving the wayfor long-term growth. We believe the integration of the two companies will create significant opportunity forcross- and upsell arrangements through the companies’ sales and delivery channels as well as will increasecustomer wallet share with combined solutions. CGI REVENUE BY GEOGRAPHY LOGICA REVENUE BY GEOGRAPHY TBR TBR $6.3 BILLION USD IN CY2011 TBR CGI REVENUE BY GEOGRAPHY POST MERGER $4.2 BILLION USD IN CY2011 2% $10.5 BILLION USD IN CY2011 TERMS 6% 3% 6% 22% 2% 4% 20% 4% 5% 9% 6% 48% 7% 9% 10% 12% 46% 18% 19% 12% 16% France UK Sweden 14% Benelux Finland Other Nordics US Canada France UK Sweden International Canada US Germany Iberia Other N. & Central Europe Rest of World Benelux Other Nordics Germany Iberia Rest of World SOURCE: CGI AND TBR SOURCE: CGI AND TBR SOURCE: CGI AND TBRIncreased scale will allow CGI to pursue and capitalize on a greater number of opportunitiesLogica maintains vertical areas of focus on the public sector and the industry, distribution and transport (IDT) spacein Europe, together comprising just below 60% of total revenue in CY2011. TBR believes Logica’s vertical expertisecomplements CGI’s, as the latter is particularly strong in the public sector and financial services industries. Thecompanies’ public sector capabilities in their respective regions will offer the new company localized knowledgeand expertise to bring to public sector organizations in a combined 43 countries. Logica’s success in its IDT verticalcontinues to increase on the back of augmented capabilities in, and go-to-market pushes with, its outsourcingportfolio. TBR believes demand for applications management and BPO solutions is on the rise in Europe asorganizations seek cost-focused solutions. We believe Logica’s alliances with Microsoft, SAP, Oracle and othercloud technology vendors will continue to augment its portfolio of cloud-based infrastructure management and AOsolutions. CGI REVENUE BY VERTICALTBR $4.2 BILLION USD IN CY2011 TBR LOGICA REVENUE BY VERTICAL TBR CGI REVENUE BY VERTICAL POST MERGER $6.3 BILLION USD IN CY2011 $10.5 BILLION USD IN CY2011 TERMS 10% 4% 18% 28% 19% 12% 34% 40% 13% 29% 21% 16% 25% 8% 22% Government Financial Services Government Financial Services Government Manufacturing, Distribution & Retail Telecoms & Utilities Manufacturing, Distribution & Retail Telecoms & Media Manufacturing, Distribution & Retail Telecom, Energy & Utilities Financial Services Healthcare Energy & Utilities HealthcareSOURCE: CGI AND TBR SOURCE: CGI AND TBR SOURCE: CGI AND TBR www.tbri.com
  • 3. COMBINED REVENUE BY CGI REPORTED 1Q12 SERVICE LINE DEEP DIVE LOGICA REPORTED 1Q12 SERVICE LINE DEEP DIVE SERVICE LINE SERVICE LINE DEEP DIVE $1.06 BILLION USD $1.53 BILLION USD $2.59 BILLION USD AO, 21.0% AO, 22.5% ITO, 45.0% C&SI, 49.1% C&SI, 36.0% Outsourcing, C&SI, 58.1% ITO, 19.4% 41.9% C&SI, 36.0% BPO, 10.5% C&SI, Outsourcing, BPO,19.0% AO, 20.1% Outsourcing, C&SI, 49.1% 58.1% 64.0% 50.9% ITO, 22.5% ITO, 17.2% BPO, 4.6% SOURCE: LOGICA, CGI AND TBR ESTIMATES SOURCE: LOGICA AND TBR ESTIMATES SOURCE: CGI AND TBR ESTIMATESAs Logica seeks to grow revenue, the company is seeking strategic partnerships to develop its solutions portfolio.Most recently, Logica partnered with HP to offer managed testing services based on HP’s Application LifecycleManagement Platform. TBR believes this will create opportunities for the merged company in the enterprisemobility space in Europe, and across the globe, as companies seek testing support to accelerate time to market fornew mobile applications. CGI will leverage Logica’s global partner network and internal capabilities to augment itsservices portfolio, particularly around disruptive technologies such as mobility and analytics, and the consultingopportunities around these technologies.Potential threats and shortcomings  Redundancies in headcount, particularly in corporate functions  CGI’s operating margin will take a significant hit over the next few years as a result of increased operating costs from more than doubling its headcount and taking on Logica’s significantly lower operating margin performance.  Integration challenges, particularly around culture, as the companies have substantial roots in their respective domestic geographies and cultures  Negative effects posed by the struggling European economic environment will impact the company’s overall performance. TBR CGI/LOGICA COMPARISON TO INDUSTRY AVERAGE - 1Q12 CGI Logica Combined Industry Avg.* Revenue (In $ M) $1,064 $1,525 $2,589 $2,522 Operating Margin 14.7% 4.1% 8.5% 9.9% Operating Income per Employee (In $ Thousands) $17.03 $4.31 $9.54 $17.19 SOURCE: TBR AND COMPANY DATA * TBRs Professional Services Industry Average **Note: Data is pulled from TBRs 1Q12 Professional Services Quarterly BenchmarkTBR’s short-term and midterm outlook  CGI’s acquisition of Logica comes two years after its $1.07 billion acquisition of Stanley Inc. under CGI Federal in the United States. TBR believes the company’s cash position and its leveraging of debt enable it to acquire companies that allow it to gain significant presence in a particular market of importance; i.e., Stanley substantially increased CGI’s presence in the U.S. public sector, and Logica will allow CGI to expand its minimal presence in Europe. We believe the company’s successful integration of Stanley Inc. into CGI Federal indicates CGI’s ability to effectively merge two companies and capitalize on the increased number of revenue opportunities.  Overall, TBR believes this acquisition will be a strategically beneficial move for CGI if executed effectively. We believe that among the existing potential acquisition targets, Logica is strong, but not a perfect fit. From a scale perspective, Logica will more than double CGI’s employee base and revenue attributable to Europe. Logica’s Eurocentricity may result in weaker-than-expected performance for CGI in the near term www.tbri.com
  • 4. TBR as enterprise and public sector customers in the region tighten budgets on the back of continued economic turmoil. TBR believes, however, the acquisition will position CGI for global expansion when the market environment rebounds in EMEA.Note: All monetary figures are in U.S. dollars unless otherwise specified.Technology Business Research, Inc. is a leading independent technology market research and consulting firmspecializing in the business and financial analyses of hardware, software, networking equipment, wireless, portaland professional services vendors. Serving a global clientele, TBR provides timely and accurate market research andbusiness intelligence in a format that is uniquely tailored to clients’ needs. TBR analysts are available to furtheraddress client-specific issues or information needs on an inquiry or proprietary consulting basis.TBR has been empowering corporate decision makers since 1996. For more information please visit www.tbri.com.©2012 Technology Business Research Inc. This report is based on information made available to the public by the vendor and other publicsources. No representation is made that this information is accurate or complete. Technology Business Research will not be held liable orresponsible for any decisions that are made based on this information. The information contained in this report and all other TBR products is notand should not be construed to be investment advice. TBR does not make any recommendations or provide any advice regarding the value,purchase, sale or retention of securities. This report is copyright-protected and supplied for the sole use of the recipient. Contact TechnologyBusiness Research, Inc. for permission to reproduce. www.tbri.com