Global IT player Cognizant has entered into a definitive agreement to acquire healthcare IT software and solutions provider TriZetto Corporation for USD 2.7 billion in cash.
The transaction is expected to be immediately accretive to Cognizant’s non-GAAP EPS, excluding one-time transaction costs and adjustments. The impact of the deal is expected to come in by next quarter.
However, analysts feel that it may take another two quarters to see a significant jump in margins, which will take Cognizant to a level of USD 3 billion when it comes to their overall healthcare IT solutions base.
The earnings benefit is expected to increase over time, as there is significant revenue synergy potential from the combination of businesses, says Cognizant management making the acquisition a natural fit for them.
Through the big-ticket deal, the New Jersey-headquartered Cognizant aims to address the rapidly changing healthcare marketplace that is currently holds about 17 percent of the US GDP of over USD 17 trillion.
In addition, Cognizant will get at least a 70 percent share of the healthcare solutions, IT, software, infrastructure management, application developments solution coming in from the US.
In terms of grabbing the healthcare pie, the firm may race ahead of Accenture, IBM, EMC and Capgemini, if the deal goes through.
Experts believe that TriZetto was also eyed due to various other factors that include significance of Obamacare and multiple contracts by the US government.
TriZetto and its 3,700 employees will become a part of Cognizant’s existing healthcare business. Therefore, the miniscule reduction in valuation to USD 2.7 billion from the estimated USD 3 billion is not a big hit and undeniably a positive for Cognizant.
Ravi Menon of Centrum Broking sees this acquisition as an aggressive move. However, he does not expect the pact to have any impact on listed IT stocks or any Indian healthcare players.
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