Tag: Bank of America

CGI growing globally with acquisition of Logica

Ben Kolada

Contact: Ben Kolada

Consolidation in the IT services segment took a leap forward today, as Canadian systems integrator CGI Group announced that it would pay £1.7bn (about $2.7bn), or £2bn when including net debt, for British counterpart Logica. We’ve already written about IT services deals happening on a smaller scale in the US, but this transaction takes the cake as being the largest cross-border deal since NTT bought Dimension Data in July 2010 for $3.2bn.

Specific to CGI, this is its largest acquisition on record, and comes almost two years to the day after it announced its previous high-priced transaction, the nearly billion-dollar purchase of systems integrator Stanley Inc. The Stanley buy itself was a geographic play, meant to expand CGI’s footprint in the US. The rationale for today’s reach for Logica is no different.

CGI is buying Logica as a pure geographic move meant to diversify its revenue globally. Currently, CGI’s revenue is split about half and half between the US and Canada, with only 6% coming from Europe. Logica, on the other hand, generates almost no revenue from North American operations. Its revenue mix is heavily slanted toward Western Europe, with its top three markets by country being France, the UK and Sweden. If and when the deal closes, the combined company will have a presence in 43 countries. The transaction will also more than double CGI’s revenue, creating the sixth-largest IT services provider worldwide.

Diversification is so key to CGI’s strategy that it is tapping nearly every possible outlet to pay for its larger rival. CGI will issue 46.7 million subscription receipts (exchangeable into new Class A shares), secure a £1.25bn term loan from CIBC, National Bank of Canada and Toronto-Dominion Bank, and draw down £405m from its existing credit facility.

Although dilutive, CGI’s shareholders so far approve of the acquisition. Shares of the Canadian company, which trade on the NYSE, were up 12% at midday. Although the deal would seem to undervalue Logica by one metric, its shareholders have reason enough to approve of the acquisition. While the transaction values Logica at about half times sales (the two most recent billion-dollar-plus IT services acquisitions, both announced last year, were done for 1x sales), CGI’s offer represents a heady 60% premium to Logica’s closing share price on May 30, and a 50% premium over the average closing share price for the prior month. Bank of America Merrill Lynch advised Logica on the deal.

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A little leads to a lot as Citi buys Ness

Brenon Daly

Contact: Brenon Daly

More than three years after buying a small stake in Ness Technologies from a fellow buyout shop, Citi Venture Capital International (CVCI) has offered some $307m in cash for all of the IT services vendor. The private equity arm of Citigroup initially picked up a 9.6% stake in Ness in early 2008 from Warburg Pincus, which funded the Israeli firm in 1999. Ness put some of that money to work in M&A, acquiring a dozen (mostly small) companies over the past decade.

Ness had been out of the market for the past year, however, as it was put in play by an unsolicited bid. (Jefferies & Company advised Ness on the sales process, along with the company’s longtime adviser Bank of America Merrill Lynch. Merrill was co-underwriter on Ness’ 2004 IPO.) We understand that Ness had attracted a fair amount of interest over two rounds of bidding, including a look from Vector Capital. CVCI’s offer of $7.75 per share represents the highest price for Ness stock since October 2008. (Interestingly, terms include a ‘no shop’ provision and a breakup fee of $8.35m, or a standard 2.7% of deal value.) CVCI expects to close the transaction within a half-year.

Thain’s thin fees

Brenon Daly

Contact: Brenon Daly

In the combination of Merrill Lynch and Bank of America, it’s all over but the shouting. The banks held separate shareholder meetings Friday to take the pending deal to their respective shareholder bases, with both sides approving it. (Originally valued at some $50bn, the slump in shares of Bank of America has cut the final price of the all-equity transaction to less than half that amount.) The deal will officially close before year-end.

While all that seems straightforward enough, the shouting is coming from a showdown over (what else?) money. Specifically, the insistence by Merrill Lynch CEO John Thain that he’s due a $10m bonus for his work over the past year. We’ll leave the debate on ‘Wall Street greed’ to Lou Dobbs and others, and, similarly, will pass on offering thoughts on whether the bonus would make Thain overpaid or not. However, we would note that a $10m advisory fee for a $21bn deal is hardly exorbitant, as any banker would tell you.

Select 2008 deals for Merrill Lynch and Bank of America

Date Acquirer Target Deal value
October 2008 ebay (Merrill Lynch) Bill Me Later $945m
October 2008 Hewlett-Packard LeftHand Networks (Merrill Lynch) $360m
July 2008 Brocade Communications Systems (Bank of America) Foundry Networks (Merrill Lynch) $2.6bn
April 2008 Blue Coat Systems (Merrill Lynch) Packeteer $268m
March 2008 BMC Software (Merrill Lynch) BladeLogic $800m
January 2008 Microsoft FAST Search & Transfer (Merrill Lynch) $1.2bn

Source: The 451 M&A KnowledgeBase

Instant investment banks

Brenon Daly

We wrote earlier this week that Bank of America’s pending purchase of Merrill Lynch gives the Charlotte, North Carolina-based giant its first real opportunity to pick up M&A advisory work in the tech market. Well, that assessment goes double for Barclays, which plucked Lehman Brothers’ banking unit out of the rubble, and it goes triple for whichever bank – if any – snags perennial tech powerhouse Morgan Stanley. (Reports on Thursday indicated that Morgan Stanley was holding talks with Wachovia, as well as considering a sale to a European institution.)

Of course, the tech M&A business is just a side-note in the unprecedented consolidation of investment banks that’s played out this week. But it’s one that shouldn’t be overlooked. Deal flow in the tech sector has approached a half-trillion dollars in each of the past two years. Even during an off-year like 2008, we’ve already seen some $250bn worth of transactions, more than the full-year total in 2004. That’s a lot of banking fees.

To be sure, there will be a substantial amount of disruption in the tech banking business as the new owners integrate the formerly independent investment banks. (For instance, LogMeIn, which filed to go public in January, still has Lehman listed as its lead underwriter. Lehman’s new owner, Barclays, is hardly known for its equity underwriter business, much less underwriting tech offerings.) But at the very least, the acquiring banks picked up the opportunity to be relevant in a market where deals worth hundreds of billions of dollars are going to get done each year. And, thanks to these historic times, they got the chance on the cheap.

Wall Street upheaval hits league tables

Brenon Daly

The unprecedented upheaval Monday on Wall Street – with Lehman Brothers going under and Merrill Lynch forced into a distressed sale – will have echoes, large and small, for years to come. Tens of thousands of jobs have been thrown into question and tens of billions of dollars of value will have to be written off. On a minor scale, the historic changes will also cause a dramatic shakeup of our tech banking league tables. (See our executive summary of our 2007 league tables report.)

With its acquisition of Merrill, Bank of America has the chance – for the first time, really – to be a legitimate contender in tech banking. (Of course, much will depend on the sensitive task of retaining Merrill’s bankers and then building on practice.) On its own, BofA never cracked the Top 10, standing in 12th place in 2007 and 16th place in 2006. But if we added BofA’s deal totals in 2007 to Merrill’s business, the combined bank would have been ranked in fourth place, just ahead of Citigroup.

More dramatically, however, the disappearance of Lehman erases a perennially strong tech bank from the league tables altogether: Lehman ranked fifth overall in 2007, and fourth the year before. Moreover, it had continued that strong run into this year, having a hand in 24 deals with an aggregate disclosed value of $77bn. For instance, Lehman had the sole mandate in the $162m sale of Iona Technologies to Progress Software and Eagle Test Systems’ $250m sale to Teradyne, as well as co-adviser roles on ChoicePoint’s $4bn sale to Reed Elsevier and Hewlett-Packard’s $13.9bn purchase of EDS. Those are among the tombstones for now-deceased Lehman.

R.I.P: Lehman’s advisory credits

Year Deal volume Aggregate announced deal value
2006 34 $143bn
2007 30 $66bn
YTD 2008 24 $77bn

Source: The 451 M&A KnowledgeBase