Cognizant Technology Solutions Corp. agreed to buy TriZetto Corp. from Apax Partners for $2.7 billion in an all-cash deal to expand in health-care industry software.
The deal will bring in additional revenue and savings of about $1.5 billion in the next five years, Teaneck, N.J.- based Cognizant said Monday in a statement.
Minority shareholders BlueCross BlueShield of Tennessee and Cambia Health Solutions will also sell their stakes in closely held TriZetto, Apax said in a separate statement.
Cognizant, one of the largest providers of outsourcing services, is tackling its biggest-ever acquisition to bulk up in information technology that helps providers streamline processes, improve the cost and quality of care and cope with an industry overhaul. The takeover follows Cognizant’s 11 percent share decline this year, driven largely by the company reducing its annual revenue forecast in August because of tech-service deals taking longer to close.
“Health care is undergoing structural shifts due to reform, cost pressure and shifting responsibilities between payers and providers,” Cognizant Chief Executive Officer Francisco D’Souza said in the statement. “The integrated portfolio of capabilities across technology and operations will uniquely position us to help clients drive higher levels of operational efficiency, while re-imagining care for the future.”
TriZetto was acquired by Apax, a London-based private- equity firm, for $1.19 billion in 2008. The Douglas County-based company was built up through about 16 acquisitions in the last 15 years, according to its website.
TriZetto serves about 350 health-care plans and supplies software to almost 245,000 doctors and other care providers. Cognizant said its health-care division currently has about 200 customers and represents about 26 percent of the technical- services provider’s revenue, which last year totaled $8.84 billion.
The companies already serve “a number of” clients in common, Cognizant said. The transaction is expected to be completed during the fourth quarter.
“Our clients have said to us they are looking for a provider that can integrate technology and services together,” D’Souza said in a phone interview. “That’s what makes this combination of TriZetto and Cognizant so strategically competitive.”
The takeover will be paid for with a combination of cash and debt, and Cognizant said it has arranged $1 billion in financing to back the purchase. The company had about $4.1 billion in cash and equivalents as of June and no debt.
On a conference call Monday, Cognizant chief financial officer Karen McLoughlin said the company won’t make any other large acquisitions until the TriZetto purchase closes and is integrated.
“While this acquisition represents a sharp departure from CTSH’s historical M&A strategy, our initial reaction is that TriZetto will significantly enhance CTSH’s competitive position in the health care vertical,” Jason Kupferberg, an analyst at Jefferies Group LLC, said in a note today, referring to Cognizant by its stock ticker symbol “CTSH.”
