Cognizant’s Acquisiton Of C1 Group Companies Indicative Of Larger Trend

IT major Cognizant has entered into a definitive agreement to acquire 6 companies of the Germany-based independent consulting and IT services firm C1 Group. The transaction is expected to close in the first quarter of 2013, but the terms of the transaction have not been disclosed.

As per the agreement, Cognizant would acquire the following companies:

1. btconsult GmbH [process and technology consulting, SAP]
2. C:1 Solutions GmbH [consulting and enterprise solutions: SAP, BPM, ECM, ERM]
3. psc Management Consulting GmbH [process and technology consulting]
4. C:1 SetCon GmbH [software engineering and testing]
5. Enterprise Services AG [a Swiss company focused on process and IT consulting]
6. C:1 Holding GmbH

This deal would benefit Cognizant in several ways. For starters, in line with Cognizant’s strategy, it would help strengthen the company’s presence in Germany and Switzerland. Given the primary focus of these companies in the verticals of manufacturing and logistics, energy and utilities and financial services, the deal would add to strength in the respective verticals. Cognizant has followed a consulting-led approach, and these acquisitions would add to its bouquet of offerings.

A subdued global macroeconomic environment has raised concerns over the growth of the IT industry. Reduced IT spending by companies accompanied by delayed decision making have taken a toll on the performance of these companies. Of late, inorganic growth is being increasingly considered by IT companies to fuel growth.  Using acquisitions in order to increase geographical presence, industry expertise, service offerings and presence in other areas seems to improve efficiency and spurt the stalled growth of application development and maintenance.

Recent deals of this nature include Infosys’ acquisition of Lodestone, Infosys BPO acquiring Marsh BPO, and Tech Mahindra taking over Hutchison Whampoa’s call centre business and Comviva Technologies. Working on similar lines, Persistent Systems too continues to look out for deals to augment its IP-led business, according to Vivek Sadhale, Company Secretary and Head – Legal and Investor Relations.

What makes it particularly attractive for companies to acquire firms predominantly operating in Europe is the lower valuations that they are available at. This would thus provide a large operating leverage to the acquirers. In the case of Infosys’ acquisition of Lodestone, the deal will help Infosys expand its consulting & systems integration business, allow cross-selling of services with Lodestone’s clientele,  as well as improve the position of Infosys by giving it exposure in geographies like continental Europe and emerging markets like Latin America and Asia Pacific. Also, considering the higher revenue per employee for Lodestone, it will help boost margins for Infosys.

Thus, in view of all these advantages acquisitions providing to IT companies, we remain bullish on these companies that have been fuelling growth inorganically.