CGI Group said it will turn a struggling U.S. systems integrator in to a profitable business process outsourcer through a merger worth approximately $1.14 billion.

The Montreal-based firm announced its intent to acquire American Management Systems Inc., based in Virginia near Washington D.C., late Wednesday afternoon. The transaction will see CGI add approximately 4,500 people to its ranks, bringing CGI to about 25,000 employees in total. Executives said there was very little customer overlap between the two firms, though they each work within many of the same vertical markets. One portion of AMS’s business related to the U.S. defence will be sold for $539 million to CACI International Inc., also based near Washington.

CGI chief executive Serge Godin said he has been trying to buy AMS for the last six years.

“”They have always been part of our plan . . . AMS is the real (reputable) brand name in the U.S.,”” he said. “”I’ve been raised in the IT business, so when I started the company with Andre and our folks here, looking at AMS, it was kind of a model to follow.””

As executives described the integration plan, however, it was clear AMS is to adopt some of CGI’s best practices. Although AMS has IT services contracts with seven out of 10 of the world’s largest banks and with more than 100 U.S. health-care organizations, the company suffered a 20 per cent drop in sales last year.

Godin said CGI wants to replicate with AMS a process that has been underway at CGI for several years: moving from traditional systems integration to working with clients willing to farm out large parts of their IT infrastructure or corporate functions enabled through IT. Research firm IDC Canada has pegged this market, commonly called business process outsourcing, to be a source of considerable growth in 2004.

“”You have seen what we did with IMR,”” said Godin, referring to CGI’s acquisition of U.S. rival IMRGlobal in 2001. “”They had 20 per cent of their revenue in outsourcing. Now when you look at what we have in the U.S. segment, it’s 60 per cent coming from outsourcing.””

Alfred Mockett, who was appointed AMS’s chairman and CEO to restructure the firm two years ago, said he would step aside following the integration with CGI. AMS was also interested in moving into the BPO space, he said, but CGI will bring a host of tools, methodologies and processes it would have had to develop on its own.

“”AMS is a business process outsourcing story waiting to happen,”” he said. “”We have 650 very complicated systems we’ve installed worldwide. It’s a natural opportunity and a natural extension of the business model . . . When we look at CGI, they’ve been there, done that, got the T-shirt.””

Following the completed merger, CGI vice-president of operations Michael Roach said approximately 59 per cent of CGI’s revenues on a pro-forma basis would come from Canada, 34 per cent (or $1 billion) would come from the United States and seven per cent could come from its operations in Europe.

Godin said CGI will take the unusual step of using the joint CGI/AMS name in the United States, which he described as a reflection of the brand’s value to its American customers.

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