Cognizant Acquires Meritsoft, Strengthens SaaS Portfolio

Cognizant Technology Solutions (NASDAQ:CTSH) recently announced the acquisition of Meritsoft, a Dublin-based privately-held financial software company. However, terms of the transaction were not disclosed.

Since Cognizant and Meritsoft are long-time partners, the integration will be a smoother process. Moreover, the acquisition not only strengthens Cognizant’s software-as-a-Service (SaaS) portfolio but also expands its footprint among financial institutions.

Notably, Meritsoft’s FINBOS platform for post-trade processing, an automation solution for managing taxes, fees, commissions and cash flows, is popular among financial institutions. Meritsoft’s solutions are currently used by “five of the world’s eight leading investment banks.”

Acquisitions to Aid Cognizant’s Growth in Financial Services

Acquisitions have played an important part in charting out Cognizant’s growth trajectory. In 2018, the company benefited from the acquisitions of Bolder Healthcare, Hedera Consulting, Softvision, Advanced Technology Group (ATG) and SaaSfocus.

These buyouts strengthened Cognizant’s digital capabilities as well as clientele. Additionally, they have helped the company expand in countries like Belgium, the Netherlands, Romania and Australia.

Moreover, Cognizant is adopting the inorganic route to strengthen its footprint in the financial services domain that accounts for a significant part (35.1% of fourth-quarter 2018 revenues) of its top line. Although Cognizant has been witnessing strong growth among insurance customers, sluggish spending by large banks has been a drag on top-line growth.

In order to expand its presence among banking customers globally, Cognizant acquired Finland-based IT management firm Samlink. The acquisition is expected to be completed on Apr 1, 2019.

As part of the deal, Cognizant was selected by three Finnish financial institutions — Savings Banks Group, Oma Savings Bank and POP Bank Group — to build and operate a shared core banking platform. More than 10% of Finnish banking deposits and loans will be managed by the new platform. Notably, all the three banks had stakes in Samlink.

Additionally, the Meritsoft acquisition strengthens Cognizant’s capabilities in trade processing domain. The deal will also help the company win contracts from financial institutions operating in the capital markets as they look to find effective solutions to manage increasing regulatory requirements. These will eventually boost Cognizant’s top-line growth.

Zacks Rank & Stocks to Consider

Currently, Cognizant has a Zacks Rank #3 (Hold).

Intuit (NASDAQ:INTU) , Guidewire Software (NYSE:GWRE) and Wipro Limited (NYSE:WIT) are better-ranked stocks in the broader computer and technology sector. All three have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for Intuit, Guidewire and Wipro is 16.3%, 8% and 9.7%, respectively.

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