Cognizant Technology Solutions Corp. (CTSH) announced on Monday the signing of a definitive agreement to acquire Belcan, LLC, a portfolio company of AE Industrial Partners and a prominent provider of Engineering Research & Development (ER&D) services. This acquisition is valued at approximately $1.3 billion in cash and stock, subject to customary adjustments.
Belcan offers essential digital engineering services to a well-established clientele in commercial aerospace, defense, space, marine, and industrial sectors, primarily within North America and the United Kingdom.
This strategic acquisition will considerably enhance Cognizant's ER&D capabilities, reinforcing the company's leadership in the Internet of Things (IoT) and Digital Engineering sectors.
The integration of Belcan will also bolster Cognizant's presence, positioning it as a leader in the rapidly expanding aerospace & defense (A&D) industry. This will be achieved through a distinguished client base, substantial domain expertise, and technological proficiency, supported by over 6,500 engineers and technical consultants.
The revenue contribution from the acquired business is projected to surpass $800 million annually, depending on the timing of the transaction's completion in 2024. Over the past two years, Belcan has achieved an 8% compound annual growth rate (CAGR) in revenue.
Cognizant anticipates this transaction will significantly enhance its access to the approximately $190 billion ER&D services market, which is projected to grow at a CAGR exceeding 10% through 2026. This complements Cognizant's existing IoT and Digital Engineering sectors.
Shareholder value is expected to increase through enhanced growth opportunities and earnings per share (EPS) accretion by 2026, with the impact largely neutral to EPS in 2025. The transaction is anticipated to generate over $100 million in annual revenue synergies within three years, alongside potential cost synergies over time.
Lance Kwasniewski, CEO of Belcan, will continue to lead the company under the Belcan name as an operating unit of Cognizant. To ensure the successful execution of strategic and financial goals related to the transaction, Cognizant plans to establish a dedicated integration program office.
The transaction is expected to close in the quarter ending September 30, 2024, contingent on regulatory approvals and other customary closing conditions.
The total purchase price, approximately $1.29 billion, includes $1.19 billion in cash and 1.47 million fixed Cognizant shares valued at $97 million, based on Cognizant's closing share price on Friday, June 7, 2024.
Cognizant intends to fund the cash consideration through a combination of cash on hand and debt. Additionally, the company plans to increase its share repurchase program to maintain the current share count guidance of 497 million for the full year 2024.
