Cognizant eyes leadership in healthcare via TriZetto buy

Cognizant, India's second-largest IT services company, on Monday announced a big-ticket acquisition, which would at one shot further establish its leadership in the health-care segment while helping the company inch further ahead of third-placed rival Infosys.

Cognizant , listed on the NASDAQ, said it is acquiring US-based TriZetto Corporation for $2.7 billion in cash. TriZetto provides health-care IT solutions and in the 12 months to June 2014, had revenues of $711 million. The purchase will add to Cognizant's already massive $2.5 billion health-care business.

In 2013, Cognizant had revenues of $8.84 billion and the firm is expected to grow 14 per cent in 2014. In June, Cognizant also hit the $10 billion revenue run rate, the second Indian company after TCS to achieve the milestone. Rival Infosys, in contrast, had revenues of $8.24 billion for the year ended March 2014 and expects its top line to grow only between seven and nine per cent in 2014/15.
 
In a press note, Cognizant said that the acquisition would bring in $1.5 billion of potential revenue synergies over the next five years. The company would also gain from TriZetto's software platforms used by payers and providers, which means revenue streams that are de-linked from people growth, the Indian IT industry's favourite model. 
 
TriZetto has 3,700 employees. A spokesperson said the company's non-GAAP operating margin for the 12 months ending June 30, 2014 was 18.4 per cent. Sanjeev Hota, an analyst with brokerage house Sharekhan, said that at first glimpse, the acquistion looks expensive - Cognizant is paying nearly four times TriZetto's top line and more than 20 times its operating profits. "But the purchase would make Cognizant the undisputed leader in health-care IT among Indian companies. It will be a challenge for other IT companies to penetrate the US health-care market," he said.

"Cognizant and TriZetto have had a long-term relationship, having jointly served a number of health-care clients to date," Gordon Coburn, President of Cognizant, noted in a statement. "This acquisition is a natural fit for us. It represents a great opportunity to integrate services across our three horizons - traditional IT services; high-growth businesses such as management consulting, business process services and IT infrastructure services; and emerging delivery models - and provide even greater value to our clients."
 
Cognizant closed flat at $44.76 on the NASDAQ on Friday (September 12).