Cognicase promises flurry of acquisitions in 2002

Cognicase has gotten started on more than two dozen acquisitions it plans to make this year.

The IT services provider and integrator put in bids this week for two firms: Calgary-based Applied Terravision and Quebec City-based AVI Software Inc. Cognicase has made a $60 million offer for Applied Terravision and $1.35 per common share of AVI on a fully diluted basis.

Cognicase is starting out 2002 on a high note, having reported fourth quarter earnings in November that included a 25 per cent increase in revenues. Fifty per cent of those revenues are long-term and recurring, and its recent acquisitions will probably add to that.

AVI, for example, makes accounting software for small and medium-sized businesses, particularly in the construction industry. Michelle Courchesne, Cognicase’s executive vice-president of corporate communications, said the software would be a good fit with its own business of outsourcing payroll and other human resource functions. “These clients were asking a lot for an integrated accounting system with what we’re doing,” she said.

AVI will bring about 75 employees to Cognicase and will be moved into the company’s employee relationship management (ERM) division. The management of AVI will stay on board and will become vice-presidents in the larger company.

AVI distributes its product through a network of some 500 channel partners, but the Cognicase takeover may alter those relationships.

“We don’t work a lot with the reseller channel; they do,” Courchesne said. “Probably it will change. We’ll see.”

AVI CEO Jacques Castonguay said that his company and Cognicase were often competing against the same firms, like Telus.

“They have such a large installed base, like Banque Nationale. Banque Nationale owns the (small and medium enterprise) market. That will open up the door for us,” he said.

“We understand how they want to buy their product and how they want it to be maintained.”

While the buyout of AVI is in keeping with Cognicase’s focus on the financial market — its last major purchase was Toronto-based financial application service provider Ezenet — the acquisition of Applied Terravision is designed to propel its growth in new areas. Applied Terravision, also an ASP, specializes in servicing customers in the oil and gas industry. Cognicase got started in this vertical about three months ago. Assuming the deal goes through, Courchesne said Applied Terravision will bring the company at least $45 million in new revenue a year.

Applied Terravision president Robert Tetriak said working under Cognicase would in turn help his firm expand beyond oil and gas into other energy sectors, as well as other geographic areas like Europe.

“We were pretty strong on our own,” he said. “But unfortunately for us, we were a small cap stock on CDNX, and the light isn’t shining on small caps right now.”

While Applied Terravision could have continued to grow organically, Tekriak said the company would have found it difficult to acquire other players in the market.

“We had tons of expansion plans; we’re not a startup,” he said. “This just accelerates some of that.”

Tetriak added that Cognicase’s expertise would also help Applied Terravision fill gaps in its own service offering. “We could do payroll, we could do H.R. . . . Before, we were limited,” he said. “We could do the back end, but then you’d have to go out and find somebody else to do the other stuff.”

Courchesne said Cognicase had many other potential targets on the table, though she wouldn’t name them.

“We’re acquiring about 30 companies a year,” she said. “We are looking at many, many acquisitions, and this one (with Applied Terravision) is a good link with the energy sector. It’s out west; we have an office in Calgary.”

Applied Terravision will bring about 300 people to the approximately 40 Cognicase employs in Calgary. Applied Terravision also has offices in Dallas and Houston.

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