CGI exiting low-margin markets, eyes M&A in cyber security

Wed Jul 29, 2015 5:59pm EDT
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By Allison Lampert and Alastair Sharp

MONTREAL/TORONTO (Reuters) - CGI Group Inc, the information systems and management consultancy, said on Wednesday it would target acquisitions in cyber security while exiting some markets entirely, as it reported third-quarter profit and revenue that missed estimates.

The chief executive of Canada's largest tech company called cyber security a high-growth and high-margin sector that CGI is already targeting with the recruitment of new workers.

"We are hiring people. The issue with that is that there are not enough of them," CEO Michael Roach said in an interview at CGI's Montreal headquarters.

"We're already very large in cyber but the rate of growth there and the fact that it's globalized so rapidly means that customers are looking for professional firms like CGI to help them address the threat."

With demand boosted by high-profile incidents such as last week's hacking of the cheating spouses website Ashley Madison, cyber security was listed by CGI as one of the top five industry trends identified through internal interviews with 1,000 clients in 2015.

Revenues generated from cyber security have yielded double digit growth on a year-over-year basis, Roach said. He added that cyber profit margins should be higher than those in most other sectors after initial capital costs, such as investing in new facilities, are sunk.

"It (cyber security margin) would be on the higher end over time of the mix equation of a typical IT services company," he said.

Roach said earlier today that CGI has compiled a short list of 85 potential acquisition targets that would help it grow by delving deeper into industries, three years after going wide with its Logica acquisition at a price of 1.7 billion pounds ($2.65 billion) in 2012.   Continued...