Chennai: US-based Cognizant Technology Solutions Corp. has entered into agreements to buy six units from C1 Group, an independent consulting and IT services firm based in Hamburg, Germany. The terms of the transaction were not disclosed.
The acquisition will see about 500 professionals across multiple locations in Germany and Switzerland joining Cognizant, the second largest IT services company in India that traces its roots to Chennai and has most of its employees based in India. The transaction is expected to close in the first quarter of 2013, subject to regulatory approvals.
“This strategic acquisition underscores our commitment to the German and the larger European markets,” said Francisco D’Souza, chief executive officer of Cognizant.
“Cognizant’s acquisition underscores the growing significance of the continental European market, in particular, Germany and Switzerland. Gaining a stronger foothold in these markets is critical for the offshore-based firms,” said Peter Schumacher, chief executive of Germany-headquartered Value Leadership Group Inc. His firm advises service providers on doing business with European customers.
The acquisition will help Cognizant’s clients in Europe address cost efficiencies and operational effectiveness. The six companies have capabilities in manufacturing and logistics, energy and utilities, and financial services.
Schumacher believes, with the deep domain and technical capabilities specific to the German market across a broad spectrum of customer sectors, it will give Cognizant important and differentiated advantages.
“The lack of these capabilities has been holding back the success of offshore-based firms in Germany,” Schumacher said. “By gaining local domain expertise, Cognizant can move up the value chain.”
This deal also comes at a time when Cognizant has been trying to reduce its dependence on US customers, which account for 79.5% of its business.
Nasdaq-listed Cognizant is poised to overtake India’s largest IT company, Tata Consultancy Services Ltd (TCS), in terms of revenue earned from North America.
But it has had limited success in Europe. TCS, due to its deeper penetration and a longer presence in the European market, has outperformed Cognizant there.
In the first nine months of this year, TCS saw 17.55% growth in revenue from European customers and Infosys raised revenue from there by 10.27%. Cognizant’s European revenue grew 5.43%.
In the US, large banking and healthcare customers give more outsourcing contracts to Cognizant, helping it stay competitive, but in Europe it lacks any such edge. Also, European banks don’t spend as much on IT as their US counterparts.
However, this acquisition and Infosys’s takeover of Lodestone Holding AG in October clearly shows that offshore-based firms are investing in the continent for the long term and leveraging the downturn as an opportunity to increase their presence there, Schumacher said.