In NJ Tech: Cognizant’s $2.7 Billion Deal Leaves Analysts, Industry Pundits Talking

Photo: Francisco D'Souza, CEO of Cognizant Photo Credit: Courtesy Cognizant
Francisco D’Souza, CEO of Cognizant | Courtesy Cognizant

When Teaneck’s Cognizant, a multibillion-dollar IT consulting and outsourcing company with its hands in a number of verticals, announced that it would spend $2.7 billion to purchase privately held healthcare IT company TriZetto (Englewood, Colo.), industry observers took notice.

The purchase was the  largest in Cognizant’s history. Michael Calia, writing for the Wall Street Journal online, noted that the deal came “more than a month after Cognizant cut its revenue estimate for the year amid a slowdown in the cycles for large deals as well as weakness at some of its clients.”

In the blog Sherpas in Blue Suits, Abhishek Singh, practice director at Everest Group, and Nitish Mittal, senior analyst at Everest Group, wrote, “This acquisition could be one of the steps allowing Cognizant to cross-pollinate and build an integrated (applications/infrastructure/business process services) services play in an industry in which it has primarily relied on its application services strengths.”

Singh and Mittal suggested that the road to integration between the two companies might not be a smooth one. “The products, platforms, and solutions play has very unique challenges, opportunities, and operating dynamics. Whether Cognizant can navigate this fundamental transition and still maintain its growth story, will be an interesting study.”

In the Business Standard, an equity analyst from Morgan Stanley was quoted as saying, “While over 3.8 times of revenue is a steep price to pay, we are encouraged by higher exposure to better margin-recurring software revenue and to the vertical strength of the company,”  in a report issued after the acquisition.

Jason Kupferberg, an analyst at Jefferies Group LLC, said that, although the acquisition represents a sharp departure from Cognizant’s historical [M&A] strategy, “our initial reaction is that TriZetto will significantly enhance [Cognizant’s] competitive position in the health care vertical,” according to a Bloomberg report.

In a statement, Cognizant said, “With more than $3 billion in combined healthcare revenue, Cognizant and TriZetto will serve nearly 245,000 healthcare providers, as well as approximately 350 payers with approximately 180 million covered lives in the U.S.

“The acquisition will create a fully-integrated healthcare technology and operations leader, positioning Cognizant to address the rapidly-changing healthcare marketplace—currently 17 percent of U.S. GDP—with next-generation solutions that increase efficiency, reduce costs and improve healthcare outcomes.”

“Healthcare is undergoing structural shifts due to reform, cost pressure and shifting responsibilities between payers and providers. This creates a significant growth opportunity, which TriZetto will help us capture,” said Francisco D’Souza, CEO of Cognizant.

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