Cognizant Technology Solutions will acquire US-based healthcare IT service provider TriZetto for $2.7 billion in cash and debt.
About 1,200 of TriZetto’s 3,700 employees work at its Pune centre. Nearly 75 per cent of the US-headquartered Cognizant’s 1.87 lakh employees are based in India.
The deal makes it the largest acquisition in value terms among the WITCH — Wipro, Infosys, Tata Consultancy Services, Cognizant and HCL Technologies — companies. The previous topper was HCL’s acquisition of UK-based Axon Group for $682 million in 2008. Thanks to this deal, Cognizant’s North America revenues are expected to exceed TCS’s.
The biggest IT deal involving an Indian IT company outside WITCH was iGate acquiring Patni for $1.2 billion in January 2011.
Second position The TriZetto deal vaults Cognizant to the second slot in terms of overall revenues, after TCS, and gives it a pipeline into what is becoming an increasingly consolidated provider system marketplace in the US, said Joseph Walent, Analyst, Technology Business Research, US.
TriZetto brings to Cognizant significant and complementary new market opportunities, expertise and intellectual property, including multiple industry-leading software platforms used by payers and providers, enhanced competitiveness in integrated engagement opportunities, about $1.5 billion of potential revenue synergies cumulatively over the next five years and attractive, non-linear software revenue, said a Cognizant statement.
TriZetto helps healthcare companies improve administrative efficiency, improve the cost, quality and delivery of care and address compliance.
With over $3 billion in combined healthcare revenue, the two US-based companies will collectively serve nearly 245,000 healthcare providers and around 350 payers (entities that finance or reimburse the cost of health services) with around 180 million covered lives in the US, says a statement issued by Cognizant.
Cognizant’s announcement comes in the backdrop of it signing a Letter of Intent last quarter for a multi-billion dollar engagement with Health Net.
“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, Cognizant.
For Cognizant, the healthcare practice contributes nearly 26 per cent of its total revenue. It reported revenues of $2.52 billion in the second quarter of this financial year.
$1 billion debt Cognizant plans to finance the transaction through a combination of cash on hand and debt. It has secured $1 billion of committed financing for the transaction, which is expected to close in the fourth quarter of 2014, the statement said.
Gordon Coburn, President, Cognizant, said the acquisition represents an opportunity to integrate services across three horizons — traditional IT services; high-growth businesses such as management consulting, business process services and IT infrastructure services; and, emerging delivery models.
TriZetto and its employees will become part of Cognizant’s existing healthcare business, which currently serves over 200 clients, including 16 of the top 20 US health plans and four of the top five pharmacy benefit management companies.