Cognizant to buy TriZetto

November 2014 | DEALFRONT | PRIVATE EQUITY & VENTURE CAPITAL

Financier Worldwide Magazine

IT and outsourcing firm Cognizant Technology Solutions announced on 15 September that it had agreed to acquire the TriZetto Corporation in an all cash deal worth around $2.7bn.

The acquisition of TriZetto from private equity firm Apax Partners will see Cognizant strengthen its position in the healthcare technology sector. According to a statement announcing the deal, the healthcare sector currently generates around 26 percent of Cognizant’s revenue – $8.84bn in 2013.

New Jersey based Cognizant will utilise a combination of cash on hand and debt to finance the deal. The firm announced that it has secured $1bn of committed financing in support of the transaction despite ending Q2 2014 with $4.1bn in cash and equivalents. According to Cognizant, the deal is expected to close in the fourth quarter of 2014, subject to the usual closing conditions and regulatory approvals. “Healthcare is undergoing structural shifts due to reform, cost pressure and shifting responsibilities between payers and providers. This creates a significant growth opportunity, which TriZetto will help us capture,” said Francisco D’Souza, Cognizant’s chief executive, in a statement announcing the deal.

Once the transaction has been completed, TriZetto, which has around 3700 employees in India and the US, will become part of Cognizant’s existing healthcare business. The company serves around 350 health-care plans and supplies software to almost 245,000 doctors and other care providers who cover about 180 million people in the US. The unit had 12 month earnings before interest, tax, depreciation and amortisation of more than $190m as of 30 June. Cognizant believes that the newly merged business will generate around $1.5bn of potential revenue synergies over the next five years. Equally, the newly combined firm will have more than $3bn in healthcare revenue. Cognizant provides a number of services including claims processing, billing and call centre operations to insurers, hospitals and some state-run health care exchanges set up under the Affordable Healthcare Act.

London based Apax Partners acquired the firm in 2008 along with minority investors BlueCross BlueShield of Tennessee and Cambia Health Solutions in a $1.4bn deal. BlueCross and Cambia have also agreed to sell their shares in the company as part of the deal. It is believed that Apax had been considering an exit from TriZetto for a number of months. Speaking about the firm’s exit, Buddy Gumina, a partner in the Healthcare Group at Apax Partners, said “We are proud of our role in partnering with such an important company in the healthcare technology and services sector. TriZetto is well positioned for future growth as its mission-critical solutions continue to add value to customers navigating the dynamic US healthcare system.”

Ratings agency Moody’s upgraded TriZetto’s credit rating in June, citing operational improvements, cost management and strong perpetual licence revenue. The company had 12 month revenue of $682m to the end of March 2014. “On behalf of the company, I would like to thank Apax Partners, whose oversight and guidance have been invaluable in helping TriZetto expand its offering of market leading solutions for our customers,” said R. Andrew Eckert, chief executive of TriZetto. “The combination of TriZetto with Cognizant will bring a whole new level of capability to the market. I’m excited about what this means to both companies as well as the markets and clients that we serve.”

The deal for TriZetto came less than a month after Cognizant, a firm which has seen considerable growth in recent years, appeared to be entering a period of stagnation in its core healthcare space. In August the firm’s quarterly earnings saw Cognizant cut its full-year revenue growth forecast by 2.5 percent. Since the financial crisis Cognizant has performed admirably, especially in comparison with other firms in the outsourcing space. In recent years Cognizant has grown its annual revenue at double the industry’s average growth rates.

Richard Summerfield