Confusion Over Brexit Will Boost Canadian Company

(Bloomberg) -- For one Canadian tech company, Brexit could mean more business in the U.K.

CGI Group Inc., an information technology provider that employs 5,000 people in the country, is bracing for increasing demand for its services as government and companies alike adjust to new rules and the economic unknown. While it has offices throughout continental Europe, CGI plans to keep its U.K. staff put.

“What we are focused on is helping our clients either deal with any challenges related to Brexit and/or deal with any opportunities related to Brexit,” Chief Executive Officer George Schindler said in an interview at the company’s headquarters in Montreal on Wednesday. “You can’t really solve most problems today without the use of IT.”

CGI expanded in the U.K. after the 2012 acquisition of Logica and makes about 11 percent of its revenue there, with almost half coming from central and local governments. Recent contracts include setting up electronic vote counting in the 2020 London elections and taking the jury summons process in England and Wales online.

Still, confusion over the terms of the separation has delayed government procurement and hurt contract bookings in recent quarters, and CGI’s U.K. revenue grew just 0.3 percent last year, compared with 6.1 percent for the whole company.

Support for Businesses

The inability of U.K. lawmakers to coalesce around a plan has spurred a litany of warnings from manufacturers and retailers alike about a no-deal divorce from the European Union, while financial-services firms have already started relocating staff and moving money to the continent. When such banks are clients, CGI can lean on almost 30,000 employees elsewhere in Europe to assist them and will deploy U.K.-based staff on other contracts at home, Schindler said.

Irrespective of whether there’s a deal or not, the U.K. government will need to change its IT systems to reflect new procedures in areas such as border control, Schindler said. As for companies, some may want to outsource their IT to lower costs and focus on customers as they navigate untested economic times, he said.

The company has experience weathering political turmoil. It makes 13 percent of its revenue from contracts with the U.S. federal government, which just went through a 35-day partial shutdown, the longest in its history. During a conference call after reporting earnings Wednesday, Schindler said CGI moved some staff around during the shutdown to mitigate its impact.

Acquisition Speculation

CGI shares have risen 24 percent over the past year and analysts have been anticipating a large acquisition, one of the pillars in CGI’s strategy as it seeks to double in size in the next five to seven years. Since the 1.7 billion-pound ($2.2 billion) purchase of Logica, it’s been buying a string of small rivals to grow its footprint in some markets, such as U.S. companies.

Schindler says the company can easily finance an acquisition “in the billions” but is waiting for the right fit and the right price. As companies and government rushed to offer more services online in recent years, IT companies’ stock prices got a collective lift, Schindler said. He now expects some valuations to come down as economic uncertainties grow.

“We will be disciplined to make sure it’s the right opportunity,” he said. You can’t do hostile takeovers in our field, it’s a people business.”

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