Cognizant to acquire ER&D services firm Belcan for $1.3 billion

Bengaluru: Cognizant Technology Solutions Corp. announced the acquisition of Cincinnati, Ohio-based engineering, research and development (ER&D) service provider Belcan LLC for $1.3 billion, which would be the information technology (IT) services company’s second-largest acquisition. 

The $1.3 billion transaction will be funded with $1.19 billion in cash and the remaining amount through 1.47 million Cognizant shares valued at $97 million as of 7 June. 

Through this acquisition, the Nasdaq-listed IT services company expects to increase its footprint in the ER&D space, in line with its Indian IT services peers.

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Infosys made its biggest acquisition when it agreed to spend $480 million to buy In-Tech, a German automotive engineering, research and development firm. In-Tech reported $180 million in revenue last year.

Noida-headquartered HCL Technologies Ltd last year spent $260 million to buy ASAP Group, a German automotive engineering services company. 

Strategic Acquisition

The country’s $254 billion technology services industry grew at 3.8% last year, the slowest pace, estimates Nasscom. But the industry body estimates engineering research and development was the fastest-growing segment, growing at 7.4%.

Cognizant's acquisition of Belcan, which has over 6,500 employees, is expected to close by the end of September. 

Also read: Infosys set to pip Cognizant to become 2nd-largest IT services firm

"We believe that acquiring Belcan will strengthen Cognizant’s position in the sizable and fast-growing ER&D services market,” said Cognizant CEO Ravi Kumar S. 

“Belcan’s deep engineering capabilities and domain expertise across the aerospace & defence market will be complemented by Cognizant’s scale and own multi-decade digital engineering expertise, providing Belcan’s blue-chip client roster access to our advanced AI, cloud and data technologies,” said Kumar.

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Cognizant ended with $19.35 billion in revenue last year. It expects its full-year revenue to be between $18.9 billion and $19.7 billion. 

One former executive maintains this acquisition is being done to backfill the loss in revenue. 

"Considering the company will book about one quarter of revenue ($200 million), it appears it is being done more to offset the loss in revenue for this year," said the executive.

Major Spend

This is the second-largest acquisition by Cognizant. In 2014, Cognizant spent $2.7 billion to buy Trizetto, a healthcare software firm.

Trizetto had $700 million in revenue at an operating margin of 18.5% and about 3,700 employees. In contrast, Belcan has $800 million in revenue and 6,500 employees. The company did not disclose its profitability but in a call with analysts after the acquisition on Monday, Cognizant's management said that the acquisition will impact its profitability by 40 basis points this year.

Also read: Cognizant lowers revenue outlook for 2024 after slow March quarter

Cognizant reported a revenue of $4.76 billion for the three months ended March 2024, which was marginally higher than the December 2023 quarter. Its operating margin fell 60 basis points to 14.6%. 

The IT outsourcing company spent $421 million on acquisitions in the quarter ended March 2024, which is more than $409 million in the full-year ended December 2023.