Cognizant to acquire US engg company Belcan for $1.3 billion 

With an eye on accelerating revenue growth in a tough environment, IT major Cognizant Technology Solutions has signed an agreement to acquire US-based Belcan LLC, a global supplier of Engineering Research & Development (ER&D) services at a purchase price of around $1.3 billion in cash and stock.
This is Cognizant’s second big acquisition in the last six months as it acquired Thirdera, a ServiceNow advisory platform, in January. With this, Cognizant also makes its first large foray in the aerospace and defence sector and joins other IT service majors in ramping up ER&D capabilities. 
As per SEC filings by Cognizant, the purchase consideration will be satisfied as $1.19 billion in cash and 1.47 million shares of Cognizant class A common stock at a current value of $97 million (based on Cognizant’s closing share price on Friday). The cash consideration is expected to be funded through a mix of cash on hand and debt.

Focus on defence sector

Founded in 1958, Belcan’s annualised revenue is at around $800 million, and its revenue is growing at a CAGR of 8 per cent over the last two years — faster than Cognizant’s own revenue growth. Addressing investors in a call, Cognizant said it expects annual revenue synergies from the deal of over $100 million within three years through cross-selling services and scaling global delivery. Belcan provides digital engineering services for customers across the commercial aerospace, defence, space, marine and industrial verticals, primarily in North America and the UK, and 76% of Belcan’s revenue comes from the aerospace and defense (A&D) sector.
As per a statement by Cognizant, the acquisition will help the company diversify into the A&D space and marine sectors, with a stable set of blue-chip clients and also add a skilled, technical workforce. Lance Kwasniewski, the CEO of Belcan, is expected to continue to lead Belcan, which will continue to operate under the Belcan name as an operating unit of Cognizant. Belcan’s headcount includes around 6,500 engineers. 
“We believe that acquiring Belcan will strengthen Cognizant’s position in the sizeable and fast-growing ER&D services market,” Cognizant CEO Ravi Kumar S, said in a statement. “Belcan’s deep engineering capabilities and domain expertise across the aerospace & 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,” he added. 
The top ER&D spenders are all Belcan’s clients and we are excited about the cross-selling opportunities, Ravi Kumar said in the investors call on the transaction. Cognizant CFO Jatin Dalal said that they expect their Q2 (April-June) revenue to come in at the upper half end of $4.75-4.82 billion guidance provided earlier. The management also noted tailwinds in the A&D sector from increased commercial airline passenger traffic, new aircraft designs, defence spending, satellite launches and other space programmes.
“Cognizant will better position our team to capitalise on compelling tailwinds, including increasing outsourced ER&D spend, the transformative impact of digital engineering adoption rates, robust commercial aerospace demand, and favorable long-term defense and space spending,” Belcan CEO Kwasniewski said in a statement.
Analysts note that as revenue growth turns tepid for top-tier IT companies, companies face a need to pivot to newer technologies, and given the strength of their balance sheets, more IT firms are expected to tap the inorganic route for revenue growth.  

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