End of 2012, Cognizant announced that it will acquire six companies of German IT services company C1 Group. That is one major step as part of Cognizant’s five-year strategic plan that focuses on building up and enhancing value-add capabilities.
Roughly 500 people out of 1,200 total employees of C1 will become part of Cognizant, most of them being located in Germany, where the acquired companies generate most business. Business focus lies on SAP C&SI and testing. From an industry perspective, financial services, manufacturing, logistics and utilities are covered.
Only recently, offshore giant Infosys made known the takeover of Swiss-based SAP consulting firm Lodestone (see “Lodestone deal is a strong move by Infosys in the consulting space“), following a similar strategic aim as Cognizant does: Enhancing business and footprint with consulting and system integration services (in this case SAP-related) in particular in Germany and Switzerland.
The announcement of the acquisition of further local consulting companies was not unexpected as offshore IT service players are pushing for growth in the German-speaking markets by building out their onshore presence to get instant access to local clients and resources, and to be able to provide higher-value (i.e. consulting) services.
Although not unexpected, it has not yet been clear when the next significant local acquisition would be announced and who would make the next move. Cognizant has been one plausible candidate among a few, as the US-headquartered IT services provider with a strong offshore presence has been putting much emphasis on its localization strategy for Continental Europe for a while now and with quite some effort, in particular in Germany and Switzerland.
C1 seems to be an attractive target as their business focus (i.e. industry and market segments) provides a reasonable match. Moreover, Cognizant has chosen Germany as their key growth market in Continental Europe and the acquisition provides a springboard for that.
But success will not come without effort. First and foremost, the integration – involving a re-organization and the retention of staff – is key to success. Cognizant has experience with acquisition integration and has placed responsibility for that to M&A-experienced managers, so that seems promising.
Client retention is another challenge that Cognizant will face. Apart from several impressive brands such as Bayer and BMW, C1 serves various small and mid-sized companies and it remains to be seen if these are ready to work with a global giant such as Cognizant on the one hand, and, on the other, if Cognizant will be able to engage at eye-level with these companies.
Last but not least, C1 brings in solid competencies with regard to consulting, system integration and testing. But adding these capabilities will certainly not be sufficient to reach a satisfactory share of higher-value services in Europe. Cognizant will have to be able to create synergies – and it will have to continue its efforts regarding the expansion of local consulting capabilities and its local sales force. We look forward to upcoming moves.
Post by Eike Bieber