CGI Group to buy Stanley for $1 billion

CGI Group and Stanley Inc. have agreed to a $1.07 billion cash deal for CGI to acquire the Arlington, Va., systems integrator, the companies announced Friday morning.

Stanley will become part of CGI Federal, more than doubling the size of CGI’s U.S. government business. The deal also gets CGI into the U.S. defense market on a large scale for the first time.

CGI, of Montreal, is offering $37.50 a share for Stanley’s stock, a 23.3 percent premium over its closing price of about $29 May 6. The boards of both companies have approved the deal. It is expected that the acquisition will close by the fall of this year.

CGI entered the U.S. market in 2004 when it acquired American Management Systems’ civilian business for $443 million. AMS’ defense business went to CACI International.

With the acquisition of Stanley, CGI is getting a company that had about $865 million in revenue for 2009, 77 percent of which was from defense, intelligence and cybersecurity customers. By comparison, CGI Federal had about $350 million in revenue during 2009.

Post-transaction, CGI Federal will have 7,000 employees with $1.2 billion in annual revenue. Defense and intelligence customers will represent 55 percent of its customer base and 45 percent will be U.S. federal civilian customers. CGI Federal President George Schindler will run the combined business.

CGI Group overall had $3.6 billion in 2009 revenue. Once combined, CGI Group expects to have $4.5 billion in annual revenue, with 31,000 employees.

"The acquisition of Stanley is in line with our build-and-buy profitable growth strategy," said CGI President and Chief Executive Officer Michael Roach, in a statement announcing the deal.

In an analyst call April 28, Roach said the company was looking for another transformative deal, such as when it acquired AMS. The U.S. market was a prime target for acquisitions because of the strong growth the company has experienced there, he said.

U.S. operations for CGI grew 12.3 percent in 2009, Roach told analysts. With the acquisition, U.S. commercial and government business will represent half of CGI's revenue.

CGI also has been generating loads of cash, giving it the resources to make a large deal. The company’s operations generated $654.5 million in cash during 2009, Roach told analysts.

Other factors giving CGI the muscle to make a deal included the strong Canadian dollar and low interest rates, Roach added.

But financial factors aside, Roach said a good deal for CGI had to pass his acid test of being good for investors, good for customers and good for CGI employees.

With Stanley, CGI is picking up a firm with strong information technology and business process outsourcing capabilities that fit well with CGI’s offerings, a CGI official said on background.

Stanley was founded in 1966 by Rear Adm. Emory Stanley, and for the next 20 years, it remained largely a two-person firm.

The company's chairman and CEO, Phil Nolan, joined the company in 1989 as a program manager and director of systems integration. The company had only 20 employees. Today, the count is 5,000. 

“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," Nolan said in the statement. "For our shareholders, this transaction provides attractive returns and, accordingly, our board intends to recommend that Stanley shareholders accept this offer.”

The acquisition will make CGI a “player of scale across the federal government,” the CGI official said, giving it the size to compete more effectively with the top-tier companies in the systems integration space.

Both companies have been ranked for many years on Washington Technology's Top 100 list of the largest government contractors. CGI was ranked No. 78 in 2009 and Stanley was ranked No. 45.