CGI To Acquire Stanley In $1 Billion Deal

Montreal-based IT services firm CGI Group has agreed to acquire Stanley, an Arlington, Va.-based defense, military and government IT contractor, in a $1.07 billion deal announced Friday. The transaction is expected to close during the fall of 2010 pending a successful share tender offer and regulatory approval.

CGI, which reports double-digit growth at its U.S. operations, has been seeking to increase its market share in the $80 billion market for U.S. government-sector IT. “The government vertical is one that continues to invest in IT throughout the entire economic cycle,” observed Michael E. Roach, President and CEO, CGI, in a conference call to investors.

Stanley supports clients across all branches of the military and in a broad range of civilian, intelligence and national security agencies, with services including systems engineering, enterprise integration, operational support, business process management and advanced engineering and technology. “The acquisition of Stanley is in line with our ‘Build and Buy’ profitable growth strategy, and is consistent with our commitment to continue expanding our footprint in the strategic U.S. market and specifically in the U.S. federal market,” said Roach.

The favorable currency exchange rate between Canada and the U.S. also contributed to the timing of the deal, Roach added.

The deal is contingent upon review by the Committee on Foreign Investment in the United States (CFIUS) per the Exon-Florio Act and the Foreign Investment and National Security Act of 2007, legislation which governs investments by non-U.S. entities in critical infrastructure. The FTC and Department of Justice are also required to review the deal for antitrust considerations per the Hart-Scott-Rodion Act. CGI would receive a break-up fee if the deal fell through under certain circumstances, and Stanley has agreed not to solicit any competing offers.

Stanley is slated to become part of CGI Federal Inc., a wholly-owned subsidiary of CGI. CGI Federal will have approximately 7,000 employees, up from the current workforce of 2,000. “Stanley has approximately 5,000 professionals who will join CGI at the time of the closing,” said Donna Morea, President, U.S., Europe and Asia, CGI.

CGI also operates in the financial services, healthcare, telecom, retail, and manufacturing sectors. Following the acquisition, the companied company will have 31,000 employees in total, including 11,000 U.S.-based employees responsible for generating nearly half of the company’s revenues. “In our business, client proximity matters,” says Morea. “The combination with Stanley supports our proximity model, with 77 percent of their professionals working at client sites across the US and abroad.”

“Joining forces with Stanley is a critical element of our U.S. growth strategy,” commented Morea. “The combination of Stanley’s defense and civilian IT and BPO services with CGI’s end-to-end capabilities, mission-critical solutions, and strong client relationships cements our position as a player of scale across the entire U.S. federal government.”

Philip O. Nolan, Chairman, President and CEO of Stanley commented: “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.”