The deal for its larger competitor makes the Montreal company the sixth largest services firm in the world
CGI Group, a Canadian IT services and business process services company, has agreed to acquire its larger European competitor Logica for £1.7 billion (US$2.7 billion) in cash, in a bid to expand its European presence, the companies said Thursday.
Earlier this month, Logica forecast that 2012 revenue could grow or shrink — but by no more than 2 percent — while the operating margin will be above 6.5 percent even in tough market conditions.
TechMarketView, a research firm in the U.K., said that Logica had been hit by a failure in execution, resulting in “the loss of another part of the U.K.’s fine tech heritage.” Logica is larger than CGI, and acquisitions where the company being bought is greater than 50 percent of the size of the acquiring company almost always fail, said Richard Holway, chairman of the research firm.
The acquisition also comes at a time when key services companies, including low-cost Indian providers, are facing a slow-down in growth in the market as a result of the debt crisis in Europe and the slow recovery in the U.S.
Gartner said in April that the IT services market would grow by 1.3 percent to US$856 billion this year, down from 6.5 percent growth last year.
Information Services Group reported in April that its TPI Index, which covers commercial outsourcing contracts valued at $25 million or more, measured total contract value of US$18.7 billion in the first quarter, a decline of 22 percent from the same quarter a year ago. The advisory and research firm characterized the drop as the industry taking a breather after two quarters of robust growth. Other research companies however continue to report a pull-back in decision making by customers in an uncertain environment.
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