CGI Acquires Comarch Polska, Bolstering European Expansion Amid Execution Risks

What happened

CGI Inc. has finalized the acquisition of Comarch Polska SA, adding over 460 professionals to grow its Poland and Baltic States presence to approximately 1,500. This move aligns with CGI's strategy to expand in Eastern Europe, leveraging its strong free cash flow and low leverage (net debt/EBITDA 0.64x) for growth. According to the DeepValue report, CGI is positioned to capture secular demand from EU public-sector digitization and AI-driven modernization, key tailwinds. However, the acquisition introduces integration challenges in a competitive market, with potential for margin dilution and cultural clashes. Additionally, it heightens regulatory exposure under the EU AI Act, which mandates compliance costs and risks fines up to 7% of global turnover.

Implication

CGI's purchase of Comarch Polska strengthens its foothold in Eastern Europe, potentially increasing revenue from EU public-sector IT contracts, a core growth area. Financially, the deal is supported by CGI's robust balance sheet, with net debt/EBITDA at 0.64x and interest coverage of 29.77x, allowing continued share buybacks. Integration risks loom large, as absorbing 460 professionals could strain margins and operational efficiency if not managed effectively. Regulatory burdens under the EU AI Act become more pronounced, adding potential costs and sales cycle elongation that may offset growth benefits. Investors should monitor post-acquisition metrics like backlog growth and margin trends in Poland to gauge the deal's value against these headwinds.

Thesis delta

The acquisition reinforces CGI's growth narrative in Europe, supporting the existing BUY thesis on public-sector digitization and AI adoption. It does not alter the core valuation case based on durable cash flow and share buybacks but introduces incremental execution and regulatory risks. Therefore, while the long-term compounding story remains intact, vigilance on integration outcomes and EU compliance is now heightened.