TEANECK, N.J. - Cognizant Technology Solutions Corp. (NASDAQ: NASDAQ:CTSH) announced today that it has entered into a definitive agreement to acquire Belcan, LLC, a key provider of engineering research and development (ER&D) services, for approximately $1.3 billion. The transaction, which includes a mix of cash and stock, is set to enhance Cognizant's capabilities in the ER&D sector, particularly within the aerospace and defense (A&D) markets.
Belcan, headquartered in the United States with a significant presence in North America and the United Kingdom, specializes in digital engineering services for various industries, including aerospace, defense, space, marine, and industrial sectors. The acquisition is expected to contribute over $800 million in annualized revenue to Cognizant and aligns with the company’s strategy to tap into the rapidly growing ER&D services market, estimated to be worth around $190 billion.
Cognizant's CEO, Ravi Kumar S., expressed confidence that the integration of Belcan will bolster the company's position in the ER&D market, leveraging Belcan's established blue-chip client base and deep domain expertise. The deal is projected to deliver more than $100 million in annual revenue synergies within three years and be accretive to Cognizant's earnings per share (EPS) by 2026.
The acquisition will bring together over 6,500 Belcan engineers and technical consultants with Cognizant's global workforce, aiming to create shareholder value and accelerate revenue growth. Belcan's CEO, Lance Kwasniewski, is expected to continue leading the company, which will retain its name and operate as an independent unit within Cognizant.
The transaction is anticipated to close by the end of September 2024, subject to regulatory approvals and customary closing conditions. The purchase price comprises $1.19 billion in cash and a fixed 1.47 million Cognizant shares, valued at $97 million based on the closing share price on Friday, June 7, 2024. Cognizant plans to fund the cash portion through a combination of cash on hand and debt.
Cognizant also intends to adjust its share repurchase program to maintain its current share count guidance for 2024. Advisors for the deal include Perella Weinberg Partners and Arnold & Porter for Cognizant, and Jefferies, Solomon Partners, and Kirkland & Ellis for Belcan.
In other recent news, Cognizant Technology Solutions has displayed resilience amid a challenging market environment. BMO Capital Markets has slightly raised the price target for Cognizant to $78, maintaining a Market Perform rating. This adjustment follows Cognizant's reaffirmation of its full-year 2024 guidance, which BMO Capital views as a positive development in the IT services sector's demanding environment.
Cognizant's Q1 2024 earnings report showed a slight revenue decline to $4.8 billion, yet the adjusted operating margin improved by 50 basis points to 15.1%. Despite a tight spending environment, the company secured eight deals over $100 million each and is planning to train over 70,000 associates on Google (NASDAQ:GOOGL) Cloud's AI offerings.
The company's full-year revenue is projected to range from a 2% decline to 2% growth in constant currency, and they plan to return over $1 billion to shareholders in 2024.
InvestingPro Insights
In light of Cognizant Technology Solutions Corp.'s (NASDAQ: CTSH) strategic acquisition of Belcan, LLC, it's pertinent to consider the company's financial health and market position. According to InvestingPro data, Cognizant boasts a robust market capitalization of $32.79 billion, underscoring its significant presence in the IT services industry. The company's price-to-earnings (P/E) ratio stands at an attractive 15.84, with an adjusted P/E ratio for the last twelve months as of Q1 2024 at an even more appealing 14.37. This indicates that investors might find the stock reasonably priced relative to its earnings.
Furthermore, Cognizant's revenue for the last twelve months as of Q1 2024 reached $19.3 billion, with a gross profit margin of 34.37%, reflecting the company's ability to maintain profitability. This financial stability is crucial as the company embarks on integrating Belcan and expanding its ER&D capabilities. Notably, InvestingPro Tips highlight that Cognizant has raised its dividend for four consecutive years and that eight analysts have revised their earnings upwards for the upcoming period. These factors suggest confidence in the company's future performance and its ability to generate shareholder value.
For investors looking to delve deeper into Cognizant's potential, there are additional InvestingPro Tips available at: https://www.investing.com/pro/CTSH. These insights include assessments of the company's low price volatility, its status as a prominent player in the IT Services industry, and its solid cash flow position. Interested readers can explore these tips and more, and by using the coupon code PRONEWS24, they can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription to access a total of 9 InvestingPro Tips that can further inform their investment decisions.
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