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Cognizant to Acquire TriZetto for $2.7 Billion
martinwolf Transaction Analysis
- Transaction Size: $2.7 Billion
- EV/EBITDA*: ~14.2x
- Cognizant Technology Solutions Corp (Nasdaq:CTSH) announced today that it was acquiring private healthcare IT services provider TriZetto Corp for $2.7 billion in its largest deal to date.
- The healthcare business of Cognizant, a leading provider of IT consulting and outsourcing services, accounted for 26% of total revenue in 2013 but has declined in the last three quarters.
- The newly combined entity will bring in $3 billion of healthcare revenue, serving 245,000 healthcare providers that cover 180 million people in the U.S.
- The deal is expected to be immediately accretive to earnings, excluding one-time costs, and in the press release Cognizant announced that TriZetto brings $1.5 billion in potential revenue synergies over the next five years.
Landmark Deal Spurred By Changing Healthcare Landscape
- Disruptive Space: The Affordable Care Act has changed the healthcare space, creating opportunities for new companies and established players alike. TriZetto has taken advantage of these opportunities, integrating closely with the new healthcare exchange program. We expect healthcare to remain a hot M&A space as the ACA matures before cooling back to normal.
- A Major Deal in a Global Industry: Annual spending in the global healthcare industry is expected to grow 5.3% over the next five years, particularly in emerging markets. This deal secures Cognizant’s access to more than half of the insured population in the United States, while positioning the Indian company to strengthen its position in a growing global market.
- Reenergizing Growth Despite Organic Challenges: Cognizant is turning to inorganic growth to jumpstart declining organic growth. The company’s stock, which reached a high of $54 in March 2014, fell recently by 17% and is now at $44.31 after the company missed revenue expectations and cut its guidance for the year.
- Going Private to Build Capabilities: Founded in 1997, TriZetto went private in an acquisition valued at $1.4 billion in April 2008 by Apax Partners. Since then it has acquired several smaller companies, growing its capabilities in areas such as revenue cycle management and Medicare/Medicaid solutions before today’s transaction.
For more information, view the press release by clicking here. *While financial terms of the transaction were not specifically disclosed, news reports claimed TriZetto’s LTM EBITDA to be more than $190m as of June 30.
martinwolf was not the advisor in this transaction.