Cognizant has made an earth-shattering commitment to the US healthcare industry via the acquisition of TriZetto for $2.7B in cash, making this the largest single commitment to the fast-growing US healthcare market. TriZetto is a privately-held provider of healthcare IT software and solutions based in Englewood, CO.
According to the press release, Francisco D’Souza, CEO of Cognizant, recognizes that shifting responsibilities between payers and providers is a huge growth opportunity in healthcare. What’s more, with the healthcare marketplace currently being 17 percent of the U.S. GDP—Cognizant is now in the perfect position to offer their next generation solutions.
The acquisition of TriZetto means that besides having attractive, non-linear software revenue, they will benefit in approximately $1.5 billion of potential revenue synergies cumulatively over the next five years, according to the release. Trizetto also brings with it multiple software platforms used by payers and providers—the competition just got fiercer in integrated engagement opportunities.
TriZetto currently serves half the healthcare accounts in the US today, and with Cognizant’s ownership could look to increase that share. Cognizant receives nearly 26 percent of its revenue from the healthcare sector. Combined, Cognizant and TriZetto will serve nearly 245,000 healthcare providers, as well as approximately 350 payers with approximately 180 million covered lives in the U.S—that’s $3 billion in combined healthcare revenue, for those keeping track.
In the press release, Gordon Coburn, President of Cognizant, said that he believes that the acquisition is a natural fit for them. The acquisition will allow them to integrate Cognizant’s services with their three specialties—traditional IT services; high-growth businesses such as management consulting, business process services and IT infrastructure services; and emerging delivery models. This is definitely looking like a win for the clients of these two companies. The transaction is expected to close in the fourth quarter of 2014.
What to Take From This
The opportunities created by having a large outsourcing firm own this type of vertical industry player is immense. Outsourcing firms have long held the view that they can create seismic shifts in an industry by using information to create value for their clients. This move by Cognizant provides the opportunity. The question on everyone’s mind is will they use it or squander the chance to materially improve healthcare in the US like so many before them?
We will all be waiting to see which direction Cognizant competitors move in the wake of this announcement. One deal usually begets copycat deals to meet investor expectations and catch up to big deal moves like the one made by Cognizant this week.