Cognizant in talks to buy UK firm Pa Consulting

Cognizant Technology Solutions, which backed out from Satyam bidding at the last moment, is in talks with London-based Pa Consulting for a buyout deal valued at $300-350 million. The preliminary discussions with the privately-held technology-led consulting firm come even as Cognizant is actively scouting for acquisitions in the European market, sources said.

Cognizant is looking to strengthen its presence in the UK and Continental Europe, from where the company gets 20% of its revenue pegged at $2.89 billion. When contacted, Cognizant CFO Gordon Coburn said in an email response, “We do not comment on speculation in the marketplace.” At the same time, Pa Consulting said, “It is not our policy to publicise or discuss in the media any alliance or partnership arrangements, and we have no comment to make.”

As the talks are still in early stages, sources say there is some doubt on the outcome and the way the deal will be structured. Banking sources said Pa Consulting with its rather strong presence in verticals like healthcare and aerospace have been on the radar of Indian IT firms that are searching inorganic growth options. The 63-year old Pa reported revenues of $342 million for 2008, with profit of $9.4 million. It has 3,000 people spread across multiple geographies with offices in New Delhi and Bangalore. Sources said Cognizant’s consulting-led approach could give Pa, which has been facing rough weather of late, a synergistic push, sources added.

The target company’s revenue during 2007 was estimated at $472 million. Pa’s operating margins reported a significant drop from 13.4% in 2005 to nearly 3.5% in 2007. Cognizant has been very active in the marketplace looking at buying out companies that fits the profile - not necessarily large entities but with skill sets in a specific domain. The last major acquisition done by Cognizant was of marketRx, a US-headquartered analytics firm with sizeable Indian offshore presence, for $135 million in October 2007. In a recent interview with ET, Cognizant CEO Francisco D Souza had said, “The environment has improved and valuations have come down.” In terms of geography focus, Mr D Souza said, “Europe is at the tail end of our investment cycle. Most of our markets have reached critical mass.” It was also being speculated that Cognizant could be looking at larger publicly listed IT services companies like Thales SA, Ciber and Invensys. But there was no confirmation on any of these companies holding talks with Cognizant.
Many of the larger Indian IT companies have made acquisitions in Europe or actively scouting the market. In the recent past, HCL Technologies acquired UK based SAP services firm Axon, while Wipro snapped up NewLogic. Interest in Europe has increased, as Indian IT firms look for inorganic growth in markets outside the US that is going though a recession.

Source: http://economictimes.indiatimes.com/Cognizant-in-talks-to-buy-UK-firm-Pa-Consulting/articleshow/4422156.cms