Nasdaq-listed Cognizant Technology Solutions has reached a formal deal to buy global engineering firm Belcan for about $1.3 billion in cash and equity. The acquisition is expected to finalize in the September quarter. The entire consideration includes $1.19 billion in cash and 1.47 million Cognizant shares, which have a current value of $97 million based on Cognizant's closing share price on June 7, 2024. The monetary consideration is likely to be funded with a combination of cash on hand and loans.
Belcan, founded in 1958, is an AE Industrial Partners portfolio company and a leading global provider of engineering research and development (ER&D) services to the commercial aerospace, defense, space, marine, and industrial verticals, primarily in North America and the United Kingdom.
The purchase takes place while Cognizant's CEO, Ravi Kumar S, is planning a turnaround to restore the company's reputation as a leader in the industry. With over 250,000 people out of a total headcount of 344,400, India is the country where Cognizant has the greatest workforce. It is anticipated that the purchase would greatly enhance Cognizant's ER&D capabilities, bolstering the business's current advantages in the Internet of Things (IoT) and digital engineering practice areas.
"With over 6,500 engineers and technical consultants, deep domain expertise, and significant technological capabilities, Cognizant will be able to establish a leadership position in the high-growth aerospace and defence (A&D) industry with the combination of Belcan's scale and capabilities," Cognizant said in a statement. Depending on when the deal closes, the acquired firm's income to Cognizant in 2024 may total over $800 million annually, according to the company. Over the past two years, the acquired business's revenue has increased at a compound annual growth rate (CAGR) of 8%.
CEO of Cognizant Ravi Kumar S. stated, "We think that acquiring Belcan will strengthen Cognizant's position in the significant and rapidly expanding ER&D services market. Belcan's deep engineering capabilities and domain expertise across the aerospace and defence market will be complemented by Cognizant's scale and own multi-decade digital engineering expertise, providing Belcan's blue-chip client roster access to our advanced AI, cloud, and data technologies."
Kumar went on to say that Cognizant views the purchase as a chance to use its combined technical expertise to quickly accelerate revenue growth and produce compelling shareholder value. "We believe that Belcan's engineering skills will benefit Cognizant's clients in the manufacturing, automotive, energy, and high-tech sectors, while Belcan's clients would have access to Cognizant's full suite of technology services," highlights Kumar.
Cognizant stated that it anticipates greatly increasing its access to the $190 billion ER&D services market as a result of this purchase. This industry is anticipated to increase at a compound annual growth rate of more than 10% through 2026.
Within three years of the purchase, over $100 million in annual revenue synergies are anticipated, and further cost synergies are anticipated over time. It is anticipated that Belcan's workforce in the United States and the United Kingdom would enhance Cognizant's worldwide delivery network to serve global programs within the clientele of Belcan.
As an operational unit of Cognizant, Belcan will continue to be run by its CEO, Lance Kwasniewski, and will continue to operate under the Belcan brand. In order to monitor and oversee the achievement of the transaction's financial and strategic objectives, Cognizant will also set up a special office for the integration program.
"Cognizant will better position our team to capitalize on compelling tailwinds, including increasing outsourced ER&D spend, the transformative impact of digital engineering adoption rates, robust commercial aerospace demand, and favourable long-term defence and space spending," Kwasniewski stated.
