Last October, CGI Group became briefly famous. Healthcare.gov, the federal insurance marketplace central to Obamacare, looked dead on arrival. The media and Congress wanted to blame someone, and all eyes locked in on CGI Federal, one of CGI Group’s U.S. subsidiaries. Though it was only one of 52 technology companies involved in the project, CGI Federal had been awarded the largest contract (estimated to be worth $290 million). A Newsweek cover story dubbed CGI “the company that botched Obamacare.” CGI Federal executives were grilled by congressional Republicans and Democrats alike. Famed short-seller Jim Chanos attacked, predicting that U.S. government contracts would dry up.
For a company known for keeping a low profile, the attention must have been uncomfortable. But if the healthcare.gov contract reveals anything about Montreal-based CGI, it’s an unrelenting ambition to be a major force in IT services. “One of the things that I keep reminding folks is that if you want to be a world-class company, you don’t shy away from complex projects,” CEO Michael Roach told Canadian Business, speaking in sharp, punctuated phrases. As Roach is fond of saying, CGI didn’t run away from the fire, but toward it. And eight months later, the company looks surprisingly free of burns. Its stock has shot up by 40% since last year, and it continues to book significant contracts around the world, including with the Swedish Transportation Authority, the Texas Railroad Commission and the State of California. And while healthcare.gov may have briefly been a fiasco, enrolments are now north of eight million, well above the Obama administration’s stated goals.
But while many industry observers agree that the company appears to have survived the political firestorm, Chanos and other short-sellers have highlighted another issue that’s making investors wary: how the company has reported revenues in the wake of its 2012 acquisition of the British firm Logica. Analyst Michael Yerashotis at Veritas Investment Research has estimated that CGI’s accounting reports more than $1 billion in earnings without a corresponding increase in the company’s cash position. Still, others have described the polarizing stock as a “screaming buy.”
Founded in 1976 by Serge Godin and André Imbeau, CGI has implemented a “build and buy” strategy that focuses equally on growing organically and beefing up through acquisitions. (It’s pulled off over 70 in its history.) CGI is now the fifth-largest IT services company in the world—and the most profitable player in Canada’s IT sector, with 2013 profits of $456 million.
Its ambition seems to have few limits: the company aims to double revenue in five to seven years. Based on its track record, it should have no problem doing that: it has doubled in size every four years for the past two decades.
Roach expects the company to deepen its presence in North America and Europe through niche acquisitions. IT services is an industry that’s consolidating quickly, and behemoths like IBM and Accenture are always on the hunt. But Roach is undeterred. “There will only be five to seven players left when the consolidation is over. Our commitment is to be one of those.”