Cognizant Technology Solutions has taken a giant stride towards reclaiming its position as the swiftest outsourcing provider by acquiring US-based TriZetto for a record $2.7 billion, The transaction will not only boost Cognizant’s healthcare revenue, but will also help the Nasdaq-listed company in narrowing the gap with its largest Indian rival —Tata Consultancy Services. In a bid to understand the rationale behind what many believe to be an ‘expensive bet’, BusinessLine spoke to Karen McLoughlin, Cognizant’s Chief Financial Officer. McLoughlin believes that TriZetto is one of the best assets in the US healthcare space and hence it will remain as a standalone organisation within the Cognizant umbrella. “We will continue the Trizetto brand, as the company enjoys strong brand recognition in the US healthcare space,” said McLoughlin. Edited excerpts:
It’s been about two days since the transaction with TriZetto was announced. What is the feedback been from investors, customers and employees?
It’s a really exciting time for us at Cognizant and we were really looking forward to announcing this transaction, not just to customers and shareholders but also employees of both companies
. I must say that TriZetto has a wonderful set of employees who are very passionate about the services they render. They are also excited to join Cognizant. We have got a lot of positive feedback from customers and shareholders. One of the important things for people to understand is the scale of the opportunity and the kind of changes happening in the US healthcare market. The transaction makes perfect sense given the changes driven by cost pressures and regulatory requirements in the US. Many of our shareholders think it’s a fabulous transaction. Some shareholders tend to know better than the others. So far the reactions have been very positive.
There is a sense in some quarters that Cognizant has overpaid for the acquisition, given that TriZetto posted sales of $711 million for the last fiscal year…
TriZetto is very unique asset. They are the largest player in the US healthcare IT space. The valuation is in line with previous acquisitions in the healthcare IT space. We believe that this deal drives revenue synergies for us and that it enhances value for our shareholders.
Given the vibrancy surrounding ObamaCare, was it a challenge to zero down on the right asset in healthcare IT?
The healthcare IT space is very attractive right now, but few companies have the same breadth of services as TriZetto.
The software and services that they provide reaches 2.45 lakh healthcare providers, representing more than half of the insured population in the US. This is something that I find unique in the healthcare space.
In other industries, you tend to find multiple players with differentiated capabilities. However, in this industry, there is just one player which has the breadth and reach of services that we were scouting for.
Do you foresee challenges in the integration of TriZetto, given that this is the largest deal that Cognizant has done till date?
Over the years, we have done several transactions in which a couple of thousand employees have had to be integrated. Hence, we are accustomed to such M&A activity. As such, we have a very strong integration plan to induct TriZetto employees.
The key thing is to drive revenue synergies as articulated before and ensure that we have the appropriate go-to-market strategy. TriZetto will remain as a standalone organisation. We will continue the TriZetto brand, as the company enjoys strong brand recognition in the US healthcare space.
However, the target company will become part of our healthcare segment. The primary focus is to ensure that the two companies jointly service our customer’s needs in the most effective manner.
Will Cognizant stay away from the mergers and acquisitions scene for the foreseeable future?
Our most important task right now is to make sure that we successfully integrate TriZetto. Hence, we do not expect to do any large deals in the near term. We are comfortable with what we have at this point in time.