Is the CGI-Stanley deal a sign of things to come?

Editor Nick Wakeman sees some hard economic realities adding urgency to deal-making in the government market.

I won't argue against the obvious positives of CGI Group’s proposed acquisition of Stanley Inc. for $1 billion.

For CGI, the deal makes enormous sense:

  • The Montreal-based company was sitting on plenty of cash and ready access to capital. The strong Canadian dollar also made the United States an attractive place to buy.
  • The U.S. market, particularly the government, also remains strong, though you can argue whether or not it is growing.
  • CGI wanted access to defense and intelligence customers, and Stanley brings that in a big way.
  • CGI and Stanley have complementary capabilities in information technology and outsourcing.

For Stanley, there also are good reasons to be acquired:

  • A very good price. A 23 percent premium is hard to argue with, particularly in today’s economy. The questions Stanley’s board had to answer were: Will our share price go up that much in the next year or two? Will the value of the company be greater if it remains independent?
  • Becoming a part of a larger company with an international presence and deeper pockets.
  • Because the vast majority of Stanley’s business represents new customers for CGI, Stanley’s people remain in their jobs. They likely won’t get new supervisors or chains of command to report to.
  • At the same time, CGI brings federal civilian, state and local, and commercial customers that are new to Stanley. If an employee wants to stretch and try a new market, there should be plenty of opportunities.

So why is this deal a sign of tough times?

In my thinking, I keep coming back to the conversation I had with Ray Bjorklund, FedSources chief knowledge officer and senior vice president, about this deal and his presentation at the FedSources 2010 Outlook conference.

Bjorklund’s analysis shows that government contracting will shrink over the next several years. Federal IT spending, the market for CGI and Stanley, is growing, but just by a couple of percentage points.

The boom years of the past decade are over for government contractors.

Think about the comments coming from Defense Secretary Robert Gates that real cuts have to be made in defense spending. The targets will be the large weapon systems, so the immediate impact will be on the large defense primes.

Driving all this, of course, are the budget deficits and debt that has accumulated fighting two wars and a world economy that is still shaky.

The result is that the competition in the government market is going to get tougher. There will be fewer new contracts -- hardly any, according to Bjorklund. This will most likely give the advantage to incumbents, so it will get even harder for companies to organically grow into new markets.

This is the underlying subtext that created the conditions for a CGI-Stanley deal.

I’m not saying that either company was struggling -- quite the opposite. CGI and Stanley both had strong growth. CGI has been looking for a defense-related acquisition for some time. Stanley had been making acquisitions of its own and is known as a strong, steady performer.

But there will be more deals like this over the next 18 months because as winning new business gets tougher, acquisitions will be the only real alternative for companies looking to maintain strong growth in the government market.

X
This website uses cookies to enhance user experience and to analyze performance and traffic on our website. We also share information about your use of our site with our social media, advertising and analytics partners. Learn More / Do Not Sell My Personal Information
Accept Cookies
X
Cookie Preferences Cookie List

Do Not Sell My Personal Information

When you visit our website, we store cookies on your browser to collect information. The information collected might relate to you, your preferences or your device, and is mostly used to make the site work as you expect it to and to provide a more personalized web experience. However, you can choose not to allow certain types of cookies, which may impact your experience of the site and the services we are able to offer. Click on the different category headings to find out more and change our default settings according to your preference. You cannot opt-out of our First Party Strictly Necessary Cookies as they are deployed in order to ensure the proper functioning of our website (such as prompting the cookie banner and remembering your settings, to log into your account, to redirect you when you log out, etc.). For more information about the First and Third Party Cookies used please follow this link.

Allow All Cookies

Manage Consent Preferences

Strictly Necessary Cookies - Always Active

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data, Targeting & Social Media Cookies

Under the California Consumer Privacy Act, you have the right to opt-out of the sale of your personal information to third parties. These cookies collect information for analytics and to personalize your experience with targeted ads. You may exercise your right to opt out of the sale of personal information by using this toggle switch. If you opt out we will not be able to offer you personalised ads and will not hand over your personal information to any third parties. Additionally, you may contact our legal department for further clarification about your rights as a California consumer by using this Exercise My Rights link

If you have enabled privacy controls on your browser (such as a plugin), we have to take that as a valid request to opt-out. Therefore we would not be able to track your activity through the web. This may affect our ability to personalize ads according to your preferences.

Targeting cookies may be set through our site by our advertising partners. They may be used by those companies to build a profile of your interests and show you relevant adverts on other sites. They do not store directly personal information, but are based on uniquely identifying your browser and internet device. If you do not allow these cookies, you will experience less targeted advertising.

Social media cookies are set by a range of social media services that we have added to the site to enable you to share our content with your friends and networks. They are capable of tracking your browser across other sites and building up a profile of your interests. This may impact the content and messages you see on other websites you visit. If you do not allow these cookies you may not be able to use or see these sharing tools.

If you want to opt out of all of our lead reports and lists, please submit a privacy request at our Do Not Sell page.

Save Settings
Cookie Preferences Cookie List

Cookie List

A cookie is a small piece of data (text file) that a website – when visited by a user – asks your browser to store on your device in order to remember information about you, such as your language preference or login information. Those cookies are set by us and called first-party cookies. We also use third-party cookies – which are cookies from a domain different than the domain of the website you are visiting – for our advertising and marketing efforts. More specifically, we use cookies and other tracking technologies for the following purposes:

Strictly Necessary Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Functional Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Performance Cookies

We do not allow you to opt-out of our certain cookies, as they are necessary to ensure the proper functioning of our website (such as prompting our cookie banner and remembering your privacy choices) and/or to monitor site performance. These cookies are not used in a way that constitutes a “sale” of your data under the CCPA. You can set your browser to block or alert you about these cookies, but some parts of the site will not work as intended if you do so. You can usually find these settings in the Options or Preferences menu of your browser. Visit www.allaboutcookies.org to learn more.

Sale of Personal Data

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Social Media Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.

Targeting Cookies

We also use cookies to personalize your experience on our websites, including by determining the most relevant content and advertisements to show you, and to monitor site traffic and performance, so that we may improve our websites and your experience. You may opt out of our use of such cookies (and the associated “sale” of your Personal Information) by using this toggle switch. You will still see some advertising, regardless of your selection. Because we do not track you across different devices, browsers and GEMG properties, your selection will take effect only on this browser, this device and this website.