Ask Serge Godin about his most prized acquisition of 2003 and the answer comes out of left field.
You would think it would be CGI Group Inc.’s showy acquisition of fellow Montreal company Cognicase. By buying its largest Canadian outsourcing rival, CGI quashed a key competitor and added to its
critical mass.
It’s not that Godin is taking the Cognicase acquisition lightly, far from it — he placed the company second on his list. But No. 1 for Godin was a deal that was announced in November 2002 and closed the following January: The Underwriters Adjustment Bureau Ltd. was bought for $53 million — considerably less than the $321 million CGI paid for Cognicase.
“”The reason why I’ve put UAB first (is because) it goes with a trend in business processing services,”” says Godin. “”We believe that this is going to be the very big trend for the next 10 years. For us, it’s quite important because we’re always trying to move up in the value chain and be an end-to-end IT services company.””
The move marked CGI’s efforts to extend its expertise in the insurance market, particularly claims management. It also complemented a five-year extension to an outsourcing contract CGI had reached with Industrial Alliance Insurance and Financial Services a few months earlier.
This year when CGI attempted to consolidate its position in Canada and let it be known that it wasn’t cowed by its larger American counterparts like IBM Global Services and EDS operating in Canada.
“”In Canada we are already the largest IT services player. Let’s say our degree of penetration in each of the markets is very good. From that point of view, in Canada it’s quite complete,”” says Godin.
CGI demonstrated a focus on what mattered by selling ERP suites and related services garnered from the Cognicase deal to Nexxlink Technologies Inc., at the same time taking a 32 per cent equity interest in Nexxlink’s capital stock. “”It was due to the fact that CGI is not necessarily structured to sell off-the-shelf products,”” says Godin. “”CGI is a services company. We have a series of solutions in the company, but it is always solutions leading to services revenue.””
The goal for 2004 will be for CGI to expand its sphere of influence in the United States and in other major markets like the United Kingdom. Godin certainly doesn’t rule out further acquisitions in Canada to help CGI further consolidate its business, but American acquisitions would help the company establish its presence south of the border. It’s a strategy that Godin and other key figures in the company articulated during its analyst and investors day in November.
“”Integration is the key to successful acquisition,”” said CGI CFO Andre Imbeau. “”If I had one goal today, it would be to show you at CGI we handle acquisitions in a systematic, well-organized and structured manner.””
In October, CGI bought Boston-based Apex Consulting Group Inc., a services company specializing in order entry/processing optimization, CRM and Web services. Godin says that a U.S. telecom player might be a future ideal target, given the growth of the IP telephony market in 2003.
CGI’s American customer focus will be financial services, manufacturing and government. But to win over U.S. customers may be a challenge for CGI, says Todd Furniss, chief operating officer of the Everest Group, a Dallas-based consultancy. “”They have to articulate why somebody should buy from them. What’s their unique value proposition? If it’s just cost and quality, it’s not sustainable,’ he says.
CGI recognizes that there may be complexities in the American market that just aren’t present in Canada. During the analyst presentation, Imbeau said that it wouldn’t make sense for CGI to acquire an American firm that specializes in homeland security, for example. “”As a Canadian company, I don’t think this would work very well. We would probably see our client base vanish because of security concerns,”” he said. “”This is the kind of thing that needs to be considered very well before making a transaction.””
CGI is looking to increase its American head count, but the firm’s size could be an asset. “”As they’re smaller than some of these tier one (integrators), one of the things they’re going to offer is a different kind of governance model and a little bit more customer intimacy in terms of access to senior managers within CGI that, let’s say, an IBM would not have,”” says Furniss.
Attention to the specific requirements of a customer is a point of pride for Godin. They are becoming more conscious of the fine print in outsourcing contracts, he says. At the beginning of 2003, Godin forecasted CGI would grow to a $4-billion firm by 2005. “”We closed the year 2003 at $2.719 billion,”” he says. “”We have another two years.”” He adds with a laugh, “”We’ve never missed our targets, by the way.””