Cognizant to acquire Belcan in $1.3 billion deal

US-based IT services firm Cognizant Technology Solutions has signed a deal to acquire engineering, research and development (ER&D) firm Belcan LLC for $1.3 billion in cash and stock, the firm said.

Belcan boasts a host of clients in the aerospace and defense sectors from GE Electric, Boeing, Rolls-Royce, Pratt and Whitney, to NASA, across North America and the United Kingdom.

After the finalization of the deal, Belcan, which has reported earnings growth of 8% each year over the last two years, is expected to add $800 million to Cognizant’s earnings for FY2024. .

Cost synergies are expected to boost revenues at both companies to the tune of $100 million each year over the next three years, Cognizant said.

The transaction is expected to close by the September quarter, subject to the required regulatory approvals.

The total purchase price is around $1.29 billion, which includes $1.19 billion in cash and 1.47 million Cognizant shares, currently worth $97 million based on their price on 7 June. This cash portion will be paid using available cash and borrowing.

Cognizant said it also plans to boost its stock buyback program to maintain the current share count guidance of 497 million for the full year 2024.

The acquisition, Cognizant said, will help it access the $190 billion ER&D services market, which is expected to grow at a compound rate of 10% through 2026, complementing its existing internet of things and digital engineering practice segments.

Cognizant CEO Ravi Kumar S said “We believe that acquiring Belcan will strengthen Cognizant’s position in the sizable and fast-growing ER&D services market.”

“Belcan’s deep engineering capabilities and domain expertise across the aerospace and defense market will be complemented by Cognizant’s scale and own multi-decade digital engineering expertise, providing Belcan’s blue-chip client roster access to our advanced AI, cloud and data technologies,” Kumar added.

Lance Kwasniewski, Belcan’s CEO, is expected to continue leading the company, which will continue to operate under the ‘Belcan’ name as an operating unit of Cognizant.

“We are excited about this unique combination and the value creation it will bring to our customers, along with the opportunities it will provide for our employees. Cognizant will better position our team to capitalize on compelling tailwinds, including increasing outsourced ER&D spend, the transformative impact of digital engineering adoption rates, robust commercial aerospace demand, and favorable long-term defense and space spending,” said Kwasniewski.

“Belcan’s experienced team has built a growth-oriented business delivering highly complex, mission-critical, scalable services to our long-standing customer base. I look forward to continuing to lead our team as we unite and leverage Belcan’s and Cognizant’s comprehensive services and cross-industry clientele.”

Perella Weinberg Partners was Cognizant’s financial advisor, and Arnold and Porter served as legal advisors. Jefferies and Solomon Partners acted as financial advisors, and Kirkland and Ellis served as legal advisors to Belcan.