Cognizant Technology Solutions is on an acquisition spree, with four full buyouts and two partial ones in 2016. Eight of its 16 acquisitions in the past six years were during the past two years – 2014 and 2016. Many of the deals are to build capabilities in the digital space.
Small acquisitions, in which the company is focusing in, will bring in one or two per cent growth and the contribution of acquisitions will be visible within three to six months, say analysts.
Cognizant has acquired 16 companies in the past six years, including Sydney-based information technology services provider Adaptra.
The acquisitions have been in various segments, including medical management, enterprise application, testing, mortgage processing, digital video solutions, healthcare, IT, digital marketing agencies and digital solutions companies, among others.
“We continue to focus on organic growth and make strategic ‘tuck-under’ acquisitions or investments to help expand our digital, platform capabilities, strengthen our domain, consulting or analytics capability or expand our geographic footprint,” said Debashis Chatterjee, president (digital systems and technology) at Cognizant.
The strategy is to acquire for capability and not capacity. The acquisitions of itaas, Cadient Group, Odecee, KBACE Technologies, Idea Couture and Mirabeau have helped Cognizant expand its digital business, operations and systems capabilities, he added.
Since the launch of Cognizant’s digital works unit, the company has made a concerted effort to bolster its digital capabilities including digital marketing, design, cloud and analytics.
Cognizant says its acquisition of TriZetto Corporation has opened an opportunity to cover nearly 245,000 health care providers and 350 payers with approximately 180 million covered lives in the US.
“Cognizant’s acquisition strategy is not unique. There are a number of companies including Accenture, IBM, PwC, CSC and Atos that are using a variety of small acquisitions to reshape and revamp their respective portfolios. What makes Cognizant stand out from the pack is its ability to leverage labour arbitrage to compete on price with Tier-1 consultancies, while its consulting bench remains in higher regard than that of India-based competitors such as Tata Consultancy Services and Wipro,” said Ryan Blanchard, research analyst with market research firm Technology Business Research.
The push towards digital economy has created competition among vendors to build up digital capabilities. This, in turn, was also increasing the costs of acquisition, he added.
On future acquisition strategies, Chatterjee said: “We will continue to look for acquisitions that further strengthen our digital, IP and platform capabilities, further enhance our domain and consulting capabilities, and further expand our geographic footprint.”
While Cognizant has also made some purchases such as 49 per cent stake in strategic consulting firm ReD Associates and acquisition of the technology and business process services unit of Frontica Business Solutions AS, the company calls these ‘strategic partnerships’, rather than acquisitions.
While the acquisitions are expected to take place in the following years, one of the challenges for Cognizant would be integrating the acquired companies, said an expert. Integrating acquisitions of all sizes can produce obstacles, and effective due diligence and well-managed integration teams will be key to Cognizant’s success.