Chapter 2

Figures converted from Canadian dollars at historical FX rates — see data/company.json.fx_rates for the rate table. Ratios, margins, and multiples are unitless and unchanged.

Acquisition Math

CGI spent about $1.4 billion on five acquisitions in FY2025, its busiest year of dealmaking in more than a decade. Almost the entire price — $1.22 billion of goodwill (87%) plus $180 million of client-relationship and backlog intangibles — was intangible; the acquired firms carried almost no net tangible assets. On the numbers the businesses came with, CGI paid roughly 40 times their earnings. Whether that clears its cost of capital depends on a margin lift management has promised but not yet delivered.

The spine of this report is a compounding engine now leaning more heavily on the "Buy" half of Build-and-Buy (Build and Buy). This chapter looks at what that half actually costs and what has to happen for it to pay.

The machine reaccelerated

For three years the acquisition machine idled. Goodwill on the balance sheet — the running tally of what CGI has paid above the fair value of the net assets it bought — barely moved from FY2021 to FY2023, sitting near $6.5 billion. FY2024 nudged it up. Then FY2025 added $2.0 billion in a single year, a 24% jump, the largest step in the company's recent history.

Source: Consolidated Balance Sheets, FY2021–FY2025 Annual Reports [1]; [2]; [3].

The five deals span the geography and mix of CGI's own footprint. BJSS, a U.K. technology and engineering consultancy of roughly 2,400 people, was the anchor at $917.0 million. Daugherty, a St. Louis AI and data-analytics firm of about 1,100, went for $250.5 million; Apside, a French digital-engineering house of about 2,500 people, for $167.9 million; Novatec (Germany) and Momentum (Québec City) were smaller and disclosed only in aggregate [4].

Sources: FY2025 Annual Report, MD and A, Investment in Subsidiaries [5]; Note 27 Investments in Subsidiaries [6]. Novatec and Momentum prices grouped under "Other" per the filing.

The $1.34 billion of cash that left the business for acquisitions (net of cash acquired) was covered by the year's $1.55 billion of free cash flow, but not with much room to spare once buybacks and the new dividend are added. Cash on hand fell from $1.02 billion to $631 million, the company issued $650 million of five-year notes in March 2025, and interest on long-term debt rose to $59.1 million from $33.4 million [7] [8]. The self-funding flywheel still turns; the buffer thinned.

What the price actually buys

An IT services firm has little to sell but its people and its client contracts, so its acquisitions convert almost entirely into goodwill and intangibles rather than plant or inventory. CGI's FY2025 deals are a clean illustration. Of the $1.41 billion in total consideration, $1.22 billion (87%) landed as goodwill and a further $180 million as intangible assets — described in the filing as mainly client relationships and backlog. Together they are 99% of the price. Net tangible assets acquired, including the cash that came with the targets, were roughly break-even [9].

Source: Note 27 Investments in Subsidiaries, FY2025 Annual Report [10]. Net tangible assets derived as consideration less goodwill and intangibles.

That is not unusual for the model, but the accumulation is worth sizing. Goodwill now stands at $8.58 billion — 60% of total assets [11] and larger than the company's entire $7.51 billion of shareholders' equity [12]. CGI has never recorded a goodwill impairment in its history [13].

Source: Consolidated Balance Sheets, FY2025 Annual Report [14].

A clean impairment record across thirty years of dealmaking — including through 2020 — is a genuine mark of discipline: CGI has historically bought small, integrated fast, and avoided the transformational deal that blows up. It also means $8.6 billion of acquired value has never been tested against a write-down, so the strength of the record and the size of the untested balance are the same fact seen from two sides.

The margin that has to arrive

The revealing disclosure sits in Note 27. CGI tells you what its three largest FY2025 targets — Daugherty, BJSS and Apside — would have earned over a full year: on roughly $818 million of combined revenue, about $34 million of net earnings, excluding acquisition and integration costs. That is a 4.1% net margin, against CGI's own 10.4% [15].

Set that against the $1.34 billion CGI paid for those three. On the earnings they came with, the price is roughly 40 times net income. Lift the acquired revenue to CGI's group margin and the same price falls to about 16 times. CGI's own shares trade near 11 times forward earnings (Build and Buy) — so even a fully margin-normalized deal was bought at a premium to CGI's own multiple. The value case rests on two things landing: the margin lift, and revenue synergies on top.

Source: derived from Note 27 pro-forma revenue and net earnings [16] and combined purchase prices [17]; CGI forward multiple per Chapter valuation snapshot.

Management is explicit that the lift is the plan, and that the mechanism is CGI's own operating system. On the Q4 FY2025 call, CFO Steve Perron said savings "are coming a lot faster when we are using our system, when we are using our processes," and that as the most recent deal, Apside, is folded in, "margin will improve. It's part of the plan." CEO François Boulanger described cross-selling CGI's managed-services and offshore delivery into the acquired client bases — pitching India-based delivery to BJSS and Daugherty clients — as the source of "1 plus 1 equal 3" [18].

There is early corroboration. In the same quarter CGI delivered a 16.6% operating margin even while integrating several deals, and the U.K. and Australia segment grew 28% with BJSS folded in [19]. Daugherty, BJSS and Apside contributed $402 million of revenue and $34 million of net earnings from their acquisition dates to year-end, so the businesses are performing broadly in line with the pro-forma [20].

Two costs of digestion show up in the meantime. Acquisition and integration costs jumped to $64.4 million from $4.1 million a year earlier, and a separate $143.7 million restructuring of the Continental European operations ran through FY2025 [21]. The integration costs are the same add-backs that widened the gap between reported and adjusted earnings (Build and Buy); they are also the reason return on invested capital dipped as the goodwill entered the capital base before the margin lift arrived.

What would change the read

The read here is measured, not adverse: CGI paid full prices for lower-margin consulting firms, and the deals earn their cost of capital only if it lifts their margins toward its own and cross-sells managed services into them. That is exactly what management is executing, with early evidence it is working — so the question is delivery, not concept.

Three checks over the next several quarters are falsifiable. First, the segment margins where the deals sit — U.S. Commercial and State Government (Daugherty), U.K. and Australia (BJSS), and Western and Southern Europe (Apside) — should trend toward the group's mid-teens; stalling there is the warning sign. Second, the pro-forma net earnings on these three, $34 million, should visibly rise as a normalized run-rate in FY2026 disclosure. Third, the first goodwill impairment in company history, on a base that now exceeds equity, would signal that a specific bet — most likely BJSS, which alone carries $835 million of goodwill — has not delivered.