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CGI Group takes another bite US federal IT market

|Includes: CGI Group Inc. (GIB), SXE

CGI Group (NYSE: GIB; TSX: GIB.A) has made a move to beef up its information technology and business processing solutions in the United States through the acquisition of Stanley, Inc (NYSE:SXE) for $37.50 per share, or $1.07 billion.

Stanley key customers are the U.S. defence, intelligence and federal civilian government agencies, with whom it provides a range of IT service and solutions.

The per share purchase price represents a premium of 23% over Stanley's 30-day volume weighted average stock price and 38% over its 60-day average.

CGI will pay for the acquisition from its current cash and credit facilities. 

"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. It is also consistent with our commitment to bring increased value to our clients and employees. From an investor perspective, this transaction will be accretive to GAAP earnings per share within the first 12 months," said Michael Roach, President and CEO of CGI.

Post transaction, nearly 50% of CGI’s total revenues will be generated in the US.  The combined company will have 31,000 employees and an order backlog in excess of $13.5 billion or 3 times annual revenues.  In 2009, the two companies generated revenues of $4.5 billion.

CGI intends to integrate Stanley into its “CGI Federal Inc” subsidiary which will have around 7,000 employees and $1.2 billion in revenues.   The newly formed subsidiary will generate 55% of its clients from the defence and intelligence sector and 45% from Federal civilian agencies CGI Federal will continue to be led by its current President, George Schindler.

Disclosure: no positions