After Dumping Debt, CGI Says It's Ready To Acquire

After finishing a $42.7 million restructuring program and paying back the last dollar of debt tied to its line of credit, tech consulting giant CGI is hunting for acquisition targets in 2016, CEO Michael Roach said this week.

Montreal-based CGI -- No. 15 on CRN's Solution Provider 500 list -- said it ended 2015 with nearly $1.5 billion in available cash and unused credit as it reported its numbers for the year-ending quarter, the first quarter of its 2016 fiscal cycle.

The company said it generated $232.6 million in cash last year from its operating activities, thanks in part to a strategy the company has been executing for three years of exiting low-margin geographies and businesses.

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Roach said CGI will look to do two things with its cash: Invest in the business to drive more productivity improvements and grow through acquisitions.

"Frankly there are 5,000 companies that are in our business," he said. "So we are actively looking [at those companies] and it looks like it's a pretty broad portfolio" that would help the company grow, he added.

Roach said acquisitions are happening across the market, and CGI continues to see "global businesses consolidate thousands of IT partners to a few" that can deliver global needs.

However, he said, as many of CGI's competitors have focused on making internal changes in order to acclimate to their acquisitions, CGI is able to strengthen its relationships with its customers as it continues to work as an IT consultant and solution provider.

"We don't have anybody doubting our sincerity and our commitment to staying in the business and to continue to deliver value and positive outcomes for our clients," he said.

Roche said the company has recently decided to target acquisitions that fall into more specific areas of its business, such as firms in the U.S. and U.K., or a move that would help it capture a bigger share of the technological "ramp up" going on in financial institutions.

However, Roche added, it would also not be a surprise if the company decided to look at acquisition targets elsewhere.

"We're still using a rifle here in terms of trying to identify those targets that would actually move us forward in the most strategic areas," he said, emphasizing that CGI is focused on buying a company that would add value to its own offerings. But finding such a deal might take some time, he said.

"It's a long process," he said, "and it takes us much time in some cases to qualify a small transaction as it does a transformational one. … So it's a work in progress."

Roche said CGI is going to move forward with smaller niche acquisitions as it keeps its eye out for "something that would move the needle much more significantly," although he said he still does not know what larger acquisitions the company will make.

CGI launched a $42.7 million restructuring process in the summer of 2015 aimed at cutting costs, which included layoffs and retreats from several geographies.

Over the course of the latest quarter, the company completed its restructuring with a final debt payment of $20.6 million. According to the company, the restructuring will continue to contribute to the double-digit earnings growth throughout the 2016 fiscal cycle.

CGI now holds only long-term debt that will be paid over "the next eight years or so," according to Roche. "We don’t have any immediate debt pressures," he said.

Before U.S. stock markets opened Wednesday, CGI reported $1.92 billion in revenue for the quarter, up 3.8 percent from the $1.85 billion the company reported in the first quarter in 2015. Earnings per share were also up, by 13 percent, to 60 cents from 53 cents in the same quarter in 2015.