HfS Research Says Few Would Dare to Fault Cognizant’s Move to Acquire TriZetto
On September 15, 2014, Cognizant announced a definitive agreement to acquire TriZetto Corporation for $2.7 billion in cash, subject to customary adjustments. Based in Englewood, CO, privately-held TriZetto is a leading provider of healthcare IT software and solutions.
HfS Research cites four reasons why this acquisition changes the game for services. Excerpts from a blog:
1. Cognizant becomes a true BPaaS, software and services firm. By acquiring a platform the size and scale of TriZetto, suddenly Cognizant is adapting to selling software, and not just service provision.
2. BPaaS will replace legacy outsourcing—it’s just a matter if time. Having a provider which understands—and can implement—a cloud platform, support the transformation and provide the necessary services that add real value to the front-office is the Holy Grail for many buyers. With half of today’s outsourcing contracts potentially up for grabs, those providers with genuine platform plays are in pole position to pick off legacy outsourcing contracts that have hit the wall, in terms of finding future value.
3. Healthcare becomes the new “financial services” for IT/BPO. In the past, most of the big bucks in industry-specific IT/BPO were in sorting out the quagmire of complexity, dysfunction and legacy in the banking and financial services space. Now, with the ACA hitting us in full-force, it’s plainly apparent that there’s a ton of opportunity taking healthcare payers and providers into BPaaS and sophisticated outsourcing models.
4. The BPaaS gauntlet is thrown down to Accenture, TCS, Infosys and Wipro to respond. Cognizant’s main competitors are rocked by this one—and they need to figure out how to raise the ante with their own BPaaS plays.
The bottom-line: Cognizant has upped the ante. The ITO labor arbitrage game is finally showing signs of drying up—and Cognizant, a major bellwether for the health of offshore services, has responded with a massive, massive bet on the future of the industry—and few would dare to fault this move.”
In an interview with HfS Research’s Phil Fersht, Cognizant CEO Francisco D’Souza says, “The acquisition of TriZetto is in response to some powerful trends that are fundamentally changing the U.S. healthcare industry today—including the Affordable Care Act, shifting responsibilities between payers and providers, and the desire for employers to contain risk and reduce cost. By combining technology and operations, we have a phenomenal opportunity to build ‘the winning business model of tomorrow’ and play a key role in keeping people healthy and well.” Excerpts:
“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 healthcare and life science practice.
This move is also consistent with our overall three-horizon strategy, and brings new markets, new technologies and new delivery models to our portfolio. It moves us very significantly in the direction of adding non-linear, IP based revenue.
We also believe that there is a growing demand for fully-integrated technology and operations using newer delivery models made possible by Cloud and digital technologies. These so called BPaaS or utility models are very powerful and this is what TriZetto represents for us in healthcare.
Our approach has always been to start with the market and focus on how best to satisfy our clients’ needs. This acquisition is driven by that client-focused strategy. Our clients are looking to us to provide integrated, end-to-end solutions that drive differentiated results for their own customers. And, of course, everyone wants to lower costs.
A few weeks ago we announced the signing of a Letter of Intent for a seven-year, $2.7 billion engagement with Health Net, a top 10 managed care organization in the US. The business model resulting from this deal is expected to be a benchmark for the industry, enabling Health Net to improve its quality of service, reduce G&A spending, and increase its agility in launching new products and participating in new markets. We think there are significant opportunities in the marketplace for deals such as Health Net and the combined capabilities of TriZetto and Health Net accelerate our ability to win such similar deals.
We believe our combination with TriZetto will provide a unique market alternative for healthcare clients looking not only to survive, but to thrive in the new healthcare context.
Like Cognizant, TriZetto is successful because it marries highly refined processes with deep domain expertise. This is why we are truly excited about what TriZetto brings to our business and customers. Jointly we can help our healthcare clients to meaningfully lower healthcare costs, improve quality of care, and make a positive difference to millions of lives.”