Takeaways From Montreal – Bits and Bytes Weekly


Takeaways From Montreal – Bits and Bytes Weekly

What’s The Event?

Our 16th Annual Eastern Institutional Investor Conference was held in Montreal this
past week. In our coverage universe CGI, DSGX and ISV presented and we include some
key takeaways. Organic growth, acquisitions and cybersecurity were some key topics
that stood out.

Companies in our coverage noted that large transformational type deals command lofty
valuations and as a result they are resorting to tuck-ins, which are more manageable
and have less capital constraints. The integration strategies for acquired targets are
typically centered around cost synergies and cultural fit, with smaller targets
leveraging the scale of the acquirer’s platform. CGI’s organic growth trajectory
continues to move upwards, given traction in its IP strategy with the company on track
to attain its goal of 30% of revenues derived from IP. Descartes sees organic growth in
the 4%-6% range driven by trade content, routing/scheduling and regulatory
compliance. Information Services’ core business remains stable and the company
continues to pursue growth opportunities given the trend towards outsourcing
registries, technology partnerships and the drive for online and self-service models.

US President Donald Trump unveiled his massive tax proposal this past week, which is
the biggest overhaul in the tax code in over three decades. A corporate tax rate of 20%
and one-time repatriation tax for foreign earnings trapped offshore are key takeaways
for US tech companies. US multinational companies have over $2.5 trillion of cash held
outside the US and using a 10% repatriation tax rate implies $250 billion in
repatriation. Recall back in 2004, under the American Jobs Creation Act, over $350
billion was repatriated by 843 US multinational firms, which was used for stock
repurchases and dividends. A lower US corporate tax rate would benefit FirstService,
Descartes, Solium, Colliers, MDA, Altus and CGI. However, companies with already low
tax rates could see M&A become incrementally more difficult (with less of a competitive advantage against highly taxed peers).