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Cognizant's Back to Back Acquisitions

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Consulting, technology and outsourcing company Cognizant Technology Solutions (CTSH - Free Report) recently announced back to back acquisitions. The company acquired a French financial services consulting company, Equinox to enhance its consulting services, followed by the acquisition of a unit of ValueSource NV.

Founded in 2004, Equinox provides service to investment banking, retail banking, insurance and asset management. Equinox’s expertise in regulatory consulting that spans Basel III, Solvency II, EMIR/Dodd-Frank, FATCA and MiFID will boost Cognizant’s consulting portfolio. Moreover, Equinox’s strength in strategy consulting, organization and operations management, change management, and HR consulting will also improve the company’s competitive position going forward. 

Lately, Cognizant has been scouting for companies with deep consulting experience.We believe that the acquisition of Equinox will fulfill that requirement. Cognizant management expects approximately $40 million of annualized revenues from this acquisition. Post acquisition, around 160 consulting professionals from Equinox will join Cognizant.

Meanwhile, Cognizant also announced that it will acquire a subsidiary of Belgium-based integrated bank insurance group ValueSource NV as part of a five-year contract with the group.

Acquisitions have been a key growth catalyst for Cognizant over the years. The company has made seven acquisitions since 2010, which includes three consulting firms.

In the past few years, Cognizant outpaced its Tier-1 peers such as TCS, Infosys Technologies (INFY - Free Report) and Wipro Ltd. (WIT - Free Report) on the back of its exposure to fast-growing verticals, like Financial Services and Healthcare.

A key strategy of Cognizant is to align its business with vertical industries, such as financial services, healthcare & life sciences, retail, manufacturing and logistics. The company has gained deep industry expertise and knowledge of the domain by acquiring and partnering some leading companies across the globe.

This is a good strategy for the firm to grow over the long run. Additionally, we believe that Cognizant, which competes with the likes of Accenture (ACN - Free Report) and Wipro, remains well diversified in key verticals and emerging markets of social, mobile, analytics, consulting and cloud, which will continue to boost its top line.

However, the increasing cost of acquisition will take some time to recover. Moreover, increasing headcount may hurt profitability in the near-term. Additionally, the uncertainty surrounding the new immigration reform bill is expected to remain a major overhang on Cognizant going forward.

Currently, Cognizant has a Zacks Rank #3 (Hold).

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