CGI to Use Cash Pile on Buybacks, `Transformational' Acquisitionby and
CEO Michael Roach unveils buybacks with stock at record high
Stock jumps 4% after quarterly earnings beat estimates
CGI Group Inc. is doing so well that Chief Executive Officer Michael Roach says the Canadian software company can buy back stock and hunt for a major acquisition at the same time.
“We have our shingle out for a large, transformational deal,” Roach said in an interview Wednesday. “We also look at the smaller niche acquisitions to add to our capabilities with individual customers.”
The company could spend as much as C$8 billion ($5.7 billion) in cash for a deal, without issuing new stock, if the right opportunity came up, said Chairman Serge Godin, in the same interview.
CGI surged 4 percent and earlier reached a record high after the software-services firm reported earnings that beat analysts’ estimates and said it may repurchase as much as 10 percent of the public float. CGI closed at C$57.72, for a market value of C$17.9 billion.
“It’s not the price of the stock, it’s the valuation,” Roach said at CGI’s headquarters in Montreal. “We don’t buy them for the sake of buying them. We believe they are undervalued.”
CGI generated C$1.3 billion of cash in the past 12 months, the company said in a slide presentation. Acquisitions and buybacks are both ways the company plans to use some of that money, Roach said.
CGI bought Logica Plc in 2012 for $2.6 billion in cash to speed its expansion into Europe. Since then, it’s been integrating Logica and working on smaller tuck-in acquisitions. The company’s strategy relies on asking customers what sorts of technology they use, then going and buying those firms and incorporating them into the larger business.
The company’s biggest source of revenue is the U.S., and Roach said he’d like to add to CGI’s presence there through acquisitions.
“The United States is the most accretive place for us,” he said. “If we could add more business on the commercial side it would work much better for us there.”