The Pros & Cons of Cognizant's acquisition of TriZetto

In late 2014, Cognizant (a leading provider of IT, business consulting, enterprise applications and business process services) acquired TriZetto (a healthcare IT solutions vendor to the payer and provider market) for $2.7bn. This was a major acquisition and will undoubtedly reap a number of positive effects for Cognizant going forward although there are still some concerns. In this blog post, I'm going to lay out the pros and cons that I have seen throughout my research to hopefully get a rounded picture of what the future may hold for Cognizant.

Pros

• This acquisition adds a comprehensive range of innovative and complex software solutions (especially core payer software) and consulting capabilities to Cognizant’s portfolio, enabling it to offer end-to-end solutions in the US healthcare market – one of its key verticals.
• TriZetto reaches almost half of the insured American population through its 245,000 healthcare provider clients as it dominates the core claims marketplace. Cognizant's long standing reputation in services will serve to compliment this position as they look to take advantage of the synergies between the two. This will also create the opportunity to enhance EHRs from claims and EHR data. Finally, Cognizant may seek to expand joint capabilities in care management, population health and PBM-related services.
• This acquisition will put pressure on other India-led outsourcers as Cognizant pushes away from Infosys and Wipro and further towards TCS. Cognizant will also look to move away from the stigma of a low-cost India-led player and start positioning itself as more of a direct threat to global MNCs. It will also be harder for smaller software and IT services providers to compete with the combined size of Cognizant and TriZetto.
• Cognizant will look to cross-sell and up-sell to clients covered by both parties (estimated to be over 30.) This will enable Cognizant to forge deeper relationships, capture greater wallet share and potentially upgrade some clients to strategic clients.

Cons

• The acquisition has brought about a law suit by fellow solutions provider Syntel. Syntel claims that the acquisition terminated a contract it had with TriZetto as well as mishandled information. Syntel is asking for $3.4m in rebates as well as $6.1bn in punitive damages. If this goes through then it will be a very significant blow at a time when Cognizant is onboarding TriZetto, making the transition even more difficult [1].
• Cognizant will need to reduce its partnership network to avoid overlap with the additional capabilities TriZetto brings to the table. For example, both Pegasystems and TriZetto have claims management solutions and so this may lead to Pegasystems being ousted to avoid a clash of interests. Whether this will be a positive or negative in the long run is up for debate but it should be interesting to see how it pans out.
• Some analysts believe that Cognizant may have overpaid for the acquisition as the $2.7bn price tag comes in at almost four times TriZetto's revenues last year. Although Cognizant is confident that this is a positive move going forward, TriZetto hasn't matched Cognizant's growth pace as of late and so it is bargaining on combined market presence rather the sum of two products [2].
• There may be integration problems both geographically and from a business perspective. With Cognizant being very consulting/systems integration/services heavy and TriZetto focusing on software, they may have a few differences in opinion of how to approach the market although it seems as though Cognizant will keep TriZetto as a single entity rather than attempting to merge it into their business. Geographically, Cognizant is primarily based in India whereas only a third of TriZetto's staff are based over there [2]. Although this will give Cognizant a positive local presence, there may be some teething issues.

In my personal opinion, a lot of the concerns are focused on the "now" and how TriZetto will be integrated into Cognizant's organization and strategic plan. Although this may cause some initial problems, if they can work these out then there is an abundance of opportunity to both differentiate itself from competition, improve its current and future client base and expand its software and services portfolio. Whether this will slow down Cognizant's acquisition and geographical expansion strategy is yet to be seen but the future looks bright in my view.

That's all for now folks, as always I'm interested to know your thoughts on this topic so feel free to comment below and finally, if you like my content please subscribe, follow me on Twitter and share on social media.

Best Regards,

Jonathan Cordwell
Research Analyst, Healthcare Strategy
ResearchNetwork, CSC

1. CRN, Syntel Sues Cognizant For More Than $6 Billion After TriZetto Acquisition, 13 Jan 2015, http://www.crn.com/news/managed-services/300075362/syntel-sues-cognizant-for-more-than-6-billion-after-trizetto-acquisition.htm
2. Financial Times, Cognizant rejects claim it overpaid for TriZetto, 15 Sep 2014, http://www.ft.com/cms/s/0/56a0d63c-3cec-11e4-a2ab-00144feabdc0.html#axzz3QxY763G9