Cognizant-TriZetto deal: Could this be the start of mega IT M&As?

Following IT services firm Cognizant’s announcement on Monday that it would purchase US-based TriZetto Corporation for $2.7 billion in an all cash deal, industry watchers have begun voicing opinions on the likelihood of similar deals coming together in the Indian market.

With several Indian IT companies like Infosys, TCS and Wipro sitting on considerable cash piles, analysts are predicting the Cognizant-TriZetto deal could mark the start of more such M&A deals to come, as IT service companies compete to outdo one another.

[caption id=“attachment_74947” align=“alignleft” width=“380”]  Reuters[/caption]

Sagar Rastogi of Ambit Capital told CNBC-TV18 that the deal is symbolic of where the IT sector will be in the next five to ten years. He said that though Indian IT companies cannot be expected to engage in similar deals within the next year, this will definitely be the trend in the long term.

More from Corporate

Maha: Court orders Rs 30L compensation for parents after youth dies in road accident Ashleigh Barty comes from set down to beat Coco Gauff in Australian Open lead-up

When asked which company of the three major Indian IT firms will be most open to acquisitions, Rastogi chose TCS, saying, “TCS on the other hand has shown in the past an ability to take big bets. It acquired Diligenta many years ago, a similar platform, BPO kind of operation which it has ramped up successfully. It also wrote a cheque for $500 billion plus for Citi’s BPO operation. So, TCS among the three will be best positioned.”

As to what the logic might be behind such future M&As, The Times of India quotes Phil Fersht, CEO, US-based HfS Research who said such deals must expand client relationships and existing capabilities.

Analysts have also predicted that the Cognizant-TriZetto deal has highlighted the potentially profitable healthcare-IT space. Cognizant CEO Francisco D’Souza said healthcare is undergoing structural shifts due to reform, cost pressure and shifting responsibilities between payers and providers.

At present, Cognizant provides services such as claims processing, billing and call center operations to insurers, hospitals and some state-run healthcare exchanges set up under President Barack Obama’s Affordable Care Act, also known as Obamacare.

Thanks to Obamacare, several IT firms have been winning government contracts to help with the backend logistics of the mega scheme. The Economic Times pegs the value of the US healthcare sector at $3 trillion.

A Bangalore-based banker who advised TriZetto’s owner, Apax Funds, told ET, “These (IT outsourcers) companies have been talking for a while ofstrengthening their presence in Smac space. But I’ll like to believe it should be in healthcare space, as it gives a huge opportunity.”