IT Services Consolidation: CGI To Buy Logica For $2.6B (And Crashes Logica’s Site In Process)
Some enterprise IT consolidation afoot, and a sign of the business crunch that the enterprise market has witnessed in the last year. CGI Corporation, an IT services firm based in Canada, has made an all-cash offer of $2.6 billion (£1.7 billion) to buy UK rival Logica, a deal that would create one more IT services powerhouse to rival the likes of IBM, Accenture and KPMG.
The offer represents a premium of 60 percent on Logica’s closing share price yesterday. Logica, one of Europe’s biggest IT services firms, has hit the rocks in the last year, with profit shrinking to £32.7 million ($50.6m) from £192.9 million ($299m) the year before on the back of IT cuts in the public sector, a key vertical for the company. It also laid off some 1,300 people in 2011. And margins for IT services — a challenge for all IT services companies — shrank to 2.2 percent from over eight percent in Logica’s main UK business.
On the news of the deal this morning, Logica’s website crashed. It appears to be live again now although working very slowly.
Logica’s chief executive is Andy Green, who joined the company in 2007 after heading up BT Global Services, the enterprise IT services division of the UK’s incumbent telecoms operator. Update: Although he presided over some of Logica’s biggest problems, and has admitted that he underestimated the scale of the downturn and the effect it would have on Logica’s business, the Telegraph reports that he could be in line for £1 million as a result of the sale, based on vested shares that would be cashed in after the acquisition.
CGI says it has around 31,000 employees, and a spokesperson for the company says that about 40 percent of its business is in public sector/government deals (with clients including the U.S. Deptartment of State and Department of Homeland Security), with a further 25 percent in financial services; 13 percent in telecoms/utilities; 12 percent in manufacturing/retail distribution and 10 percent in heath.
In that sense, the deal looks like a good fit: Logica has a client base mainly focused on large enterprises, public sector groups and utilities. (Customers include energy giant Shell and the UK’s Serious Organized Crime Agency.) But by focusing on large business that also means when something goes awry that can hit Logica hard: Logica says that its top 50 clients last year made up 44 percent of its revenues.
In its decades of operation, Logica has had a history of running a number of groundbreaking technology services, including creating and running a lot of the clearing for UK and European mobile text messaging, banking transfers and the automated ticketing system for the London Underground.
But it’s also been through several rocky patches over the last 10 years, including profit warnings, and it has divested of several operations — including the sale of its telecoms assets in 2007 for $525 million to Atlantic Bridge Ventures. That business is now called Acision.
Logica’s statement to the market is here.
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