IT, consulting and business process services specialist Cognizant announced that it has entered into a definitive agreement to acquire TriZetto, a privately held provider of health care IT software and solutions, for $2.7 billion in cash.
Cognizant made the deal to accelerate its market position and strategy of delivering health care software and solutions to a wider range of health care clients. Health care currently represents approximately 26 percent of Cognizant’s revenue.
The company brings to Cognizant new market opportunities, expertise and intellectual property, including multiple software platforms used by payers and providers, non-linear software revenue and approximately $1.5 billion of potential revenue synergies cumulatively over the next five years.
"TriZetto is a company we have known and done business with for many years. They have multiple industry-leading software platforms used by a large number of payers and providers," Cognizant's president, Gordon Coburn, told eWEEK. "Currently, we are supporting TriZetto platforms for dozens of clients. We are very familiar with the company, its people and its culture, and are excited to have their team join Cognizant."
TriZetto and its 3,700 employees will become a part of Cognizant’s existing health care business, which currently serves more than 200 clients, including 16 of the top 20 U.S. health plans and four of the top five pharmacy benefit management companies.
"Today, approximately half of the U.S. insured population have their health benefits managed by TriZetto software, and we see tremendous synergy opportunities to join that with our $2.5 billion health care and life science practice," Coburn said. "By combining TriZetto’s products with Cognizant’s consulting, IT and business process services, we are confident that we can capitalize on opportunities that neither company could access individually."
Coburn noted there are two major forces impacting health care today, with the first being technology-based, as clients are looking for industry-focused, as-a-service solutions that leverage the latest SMAC and digital technologies, enhanced by the insights that come with managing large pools of data.
"The second is the massive transition underway in the U.S. health care industry driven by the Affordable Care Act, demographics of an aging population, the desire of employers to shift risk and contain costs, and shifting responsibilities between payers and providers," he said. "At about $2.7 trillion of total spend, the industry is equivalent to nearly one-fifth of U.S. GDP. The combination of these two factors is driving fundamental changes to every constituency in the value chain."
Cognizant intends to finance the transaction through a combination of cash on hand and debt, and has secured $1 billion of committed financing in support of the transaction. The transaction is expected to close in the fourth quarter of 2014.
Coburn said in the future payers and providers in particular need to focus on making their operations as efficient as possible, while at the same time investing to drive growth and innovation in an increasingly competitive environment.
"We call this the ‘dual mandate’ and it’s what makes the combination of Cognizant health care with TriZetto so strategically compelling for our health care clients," he explained. "We see health care clients with a broad need for end-to-end solutions that respond to this dual mandate, and we believe our combination with TriZetto will provide a unique market alternative for these clients looking not only to survive, but to thrive in the new health care context."