Chennai: US software services firm Cognizant Technology Solutions, which employs 49,000 people in India, has acquired marketRx Inc., another US company with a substantial India presence, for $135 million (Rs537 crore) in cash.
The move will give Cognizant a large presence in the market to provide software solutions that can improve the marketing performance of pharmaceutical companies.
Mainstream technology firms such as Cognizant have been acquiring smaller companies with specialized expertise in an effort to round off their own capabilities. Over the past 24 months, Cognizant’s larger peer Wipro Ltd, for instance, has acquired 16 firms at prices ranging from $20 million to $600 million.
“The acquisition is part of a trend where mainstream IT (information technology) companies are building capabilities by acquiring relatively small companies focusing on niche areas like market analytics,” said a top executive in the knowledge process outsourcing (KPO) industry who did not wish to be identified.
KPO refers to the offshoring of knowledge-intensive functions—improving efficiency of pharma salesforce through the use of software is one such. The science of using software to crunch market and sales data and come up with ways to improve performance is called market analytics.
MarketRx’s acquisition, the largest ever by Cognizant, gives the Nasdaq-listed firm access to the former’s 75 customers, including all the top 20 pharma companies in the US and four of the top five biotechnology firms.
In a report issued after the acquisition was announced on 18 October in the US, Goldman Sachs & Co. said Cognizant could cross-sell “additional offshore services in application management and development” to these 75 firms.
“The current growth profile of the company (marketRx) is estimated in the high double-digit range, with operating margins near the Cognizant model,” added the report. marketRx is a privately-held company.
R. Chandrasekaran, president and managing director of Cognizant, said he expects all 430 employees of marketRx (around 50% are in India) to join Cognizant. marketRx’s chief executive officer Jaswinder S. Chadha is to become the head of Cognizant’s analytics practice.
The impact of the acquisition on Cognizant’s earnings per share will be insignificant because marketRx’s expected revenues for 2007 are $40 million compared with Cognizant’s 2006 revenues of $1.42 billion.
In its report, Goldman Sachs said that the acquisition “rounds off Cognizant’s capabilities in life sciences”.
“This acquisition helps to strengthen Cognizant’s leadership position in the life sciences and biotech industry, allowing us to serve clients across all areas, from R&D (research and development), manufacturing to sales and marketing operations,” Chandrasekaran said.
With venture capital investors in marketRx cashing out successfully, the acquisition could encourage more venture capital firms to invest in the analytics data, said the KPO executive.
In 2003, WestBridge Capital Partners, now known as Sequoia Capital, invested $10.25 million in marketRx along with other investors, including Andwel Partners. The stake held by Sequoia isn’t known although the company was described by Chandrasekaran as the “major shareholder”.
“The offer was attractive and also we usually follow the founder’s desire in a decision like this,” said Sandeep Singhal, managing director of Sequoia Capital India, referring to the company’s decision to cash out. The founder promoters of marketRx, Jaswinder S. Chadha and Navdeep Chadha, have exited the company along with Sequoia Capital.
MarketRx had received offers from several IT companies, but decided to choose Cognizant because of the latter’s prior presence in the health care segment, which now account for 34% of its revenues, its CEO said.
“We found Cognizant to have the strongest life sciences practice among offshore companies. While others wanted to use marketRx to launch their life sciences practice, with Cognizant it was more of leveraging our market leadership for further growth and differentiation. We also saw Cognizant’s management as more ‘new age’ and culturally compatible with ours. Cognizant’s strong front-end market presence coupled with a global delivery model was also similar to our operating model,” said Jaswinder Chadha.
“The bids received were around the same ballpark figure, but we decided in favour Cognizant because of their prior experience in health care,” said a person close to the development who did not wish to be identified.
“This is a strategic acquisition with good margins. You will notice that marketRx’s revenue per employee is approximately $100,000 per annum, given that their revenue for 2007 is expected to be over $40 million and they have about 430 employees,” said Chandrasekaran.