Tag: Engineering Services

Cognizant’s Acquisition of Belcan – An Engineering Services Leaderboard Shake-up | Blog

Cognizant’s acquisition of Belcan for US$1.3 billion marks a significant expansion in its engineering services portfolio. This strategic move enhances Cognizant’s capabilities, positioning the company closer to the top-tier engineering service providers. Reach out to us directly to discuss this topic further.

Cognizant recently announced the acquisition of Belcan, a portfolio company of AE Industrial Partners, for a total enterprise value of US$1.3 billion. This is among the largest acquisitions in the history of Cognizant, which, interestingly, has acquired seven companies with an engineering services focus since CY2021.

This is also the biggest acquisition of recent times in engineering services – a space that has been known for rampant M&A activity and sees a marquee acquisition every few years amid tens of tuck-in acquisitions. The last large acquisition in this space was back in 2022 when Modis acquired Akka Technologies (EV of US$2.36 billion).

Based on revenue estimates for Belcan, this acquisition sits at a modest revenue multiple of ~1.55x, which is slightly lower than the other recent acquisitions in this space, such as:

  • Infosys’ acquisition of In-tech (EV: EUR450 million; 2.6x revenue)
  • Infosys’ acquisition of InSemi (EV: INR280 crores, 1.8x revenue)
  • HCLTech’s acquisition of ASAP (EV: EUR250 million; 1.6x revenue)

This seems like a bargain deal for Cognizant (especially considering that we saw valuations as high as 9.6X revenue, as recently as 2021).

So, what does Cognizant stand to gain on the back of this acquisition? Let’s discuss.

A significant elevation of its engineering services portfolio

Everest Group publishes an annual list of Top 50 Engineering Service Providers based on their engineering services revenue and growth. Cognizant was positioned at #7 in the last edition of the list, preceded by Accenture, Akkodis, Alten, Capgemini, HCLTech, and TCS.

Considering the combined engineering services portfolio of Cognizant and Belcan – the combined entity would inch closer to the top 5 providers.

A sizable play in a growing and uncrowded space

Asset-heavy verticals, particularly the automotive vertical, have been the hot favorites among service providers from a capability-building and acquisition standpoint. This has been on account of the resilience these verticals have showcased over several quarters despite the economic slowdown. While Cognizant broadly adhered with this industry trend as it picked Belcan, it took a slightly unconventional approach by focusing to tap into the aerospace and defense (A&D) vertical.

There are two key reasons for this shift in focus to A&D. Firstly, in CY 23, outsourcing in this vertical grew the fastest (9-11%) on account of enhanced defense spending and a post-pandemic recovery in aviation and aerospace. Secondly, compared to automotive, this vertical is less catered to by providers. While automotive is catered to by 90% of the providers featured in the ES Top 50 list, only 60% of the providers cater to A&D, thus making the space less crowded.

To bolster Cognizant’s asset-heavy portfolio, Belcan brings a vast pool of 6,500+ specialized engineers across not just A&D, but also automotive, industrial, and even cybersecurity. A&D remains their key focus area, where, along with expertise, Belcan also brings a well-established client base with “blue-chip” enterprises and state defense departments such as the US Department of Defense (DoD). This acquisition, along with capabilities, also fills whitespaces in the geographic footprint. For example, a strong network of offices in the United Kingdom will bolster Cognizant’s European presence, while the innovation centers in offshore locations will serve as hubs for high-quality technical solutions dedicated to A&D.

Were there other approaches that Cognizant could have considered for the desired outcome?

In recent quarters, IT service providers such as Cognizant have struggled with sluggish or stagnant top-line growth due to budget cuts, project downsizing in key verticals, and reduced focus on discretionary spending.

Juxtaposing this need with the continued growth momentum (albeit slowed down than in the past) being observed in the ER&D spending across enterprises has led to a faster growth rate in the engineering outsourcing services market viz-a-viz the traditional IT services outsourcing. In that spirit, the engineering services market seems to be the right choice to catapult growth and beat the slowdown.

While it is easy to zero down on the engineering services arena, it is difficult to follow the traditional approach and build capability organically, as has been the case in the past. This is because of the unique nature of engineering services, which is characterized by new-age design thinking (across software product engineering) and deep-domain expertise (across manufacturing and connected products engineering). In such an arena, it becomes poignant for providers to adopt the inorganic route, which enables quick muscle building and maybe relationships as well (as in the case of Cognizant – Belcan).

At the same time, this acquisition also brings in diversification from a vertical standpoint as currently, Cognizant’s top-line leans heavily towards BFSI and healthcare. While these industries are recovering, their growth isn’t as rapid as some of the asset-heavy industries.

To learn more about the engineering services landscape, reach out to Ankur Jain, [email protected], Mayank Maria, [email protected], and Nishant Udupa, [email protected].

Navigating the Platform Odyssey: Software Product Engineering Services PEAK Matrix® Assessment 2024

Navigating the Platform Odyssey: Software Product Engineering Services

In the product engineering space, software remains the largest area of expenditure, maintaining its upward trajectory despite a slower pace. This deceleration is primarily due to recessionary headwinds, geopolitical conflicts, talent shortages, and delayed decision-making within enterprises. Amid this macroeconomic turbulence, several themes continue to drive software R&D forward. These include transitioning to platform-based business models, increasing the adoption of AI- and gen AI-augmented secure products, prioritizing sustainability, and enhancing customer and developer experiences.

The shift toward these transformative themes, coupled with the current economic climate, is significantly altering enterprises’ expectations from their providers. Rather than solely seeking providers focused on offering engineering talent, enterprises now aspire to engage with strategic partners capable of delivering savings, speed, and innovation simultaneously.

Navigating the Platform Odyssey: Software Product Engineering Services

What is in this PEAK Matrix® Report

This report, the fifth edition of Everest Group’s Software Product Engineering Services PEAK Matrix® Assessment, evaluates 43 engineering service providers, positioning them on the PEAK Matrix® framework and offering insights into enterprise sourcing considerations.


Contents: 

In this report, we examine:

  • Everest Group’s services PEAK Matrix® evaluation of engineering service providers associated with software product engineering services
  • The characteristics of Leaders, Major Contenders, and Aspirants
  • Providers’ market impact and vision and capabilities
  • Providers’ key strengths and limitations

Scope:

  • Industry: software product engineering
  • Geography: global
  • The study is based on RFI responses from providers, interactions with their software product engineering services leadership, client reference checks, and an ongoing analysis of the software product engineering services market

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Cognizant’s Acquisition of Belcan – An Engineering Services Leaderboard Shake-up

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Engineering Services in 2024: The Market Outlook and Commercial Trends

ES Price Benchmarking Catalog 2024
Market Insights™

ES Price Benchmarking Catalog 2024

Impact Sourcing Talent Distribution Delivery Footprint
Market Insights™

Impact Sourcing Talent Distribution Delivery Footprint

What is the PEAK Matrix®?

The PEAK Matrix® provides an objective, data-driven assessment of service and technology providers based on their overall capability and market impact across different global services markets, classifying them into three categories: Leaders, Major Contenders, and Aspirants.

LEARN MORE ABOUT Top Service Providers

Engineering Services in 2024: The Market Outlook and Commercial Trends | Webinar

on-demand webinar

Engineering Services in 2024: The Market Outlook and Commercial Trends

While the professional services market experienced a slowdown last year, engineering services emerged as a standout performer among other segments.

In this webinar, our analysts examined the past performance and future prospects of the engineering services sector. Participants gained valuable insights into the pricing outlook, commercial dynamics, market attractiveness, and evolving buyer expectations for engineering services. Finally, we explored emerging trends and future projections.

What questions did the webinar answer for the participants?

  • How did the engineering services market perform in 2023?
  • What are the latest enterprise objectives and recent commercial trends in this space?
  • How will the engineering services market shape out in 2024, and what can service providers do to improve win rates in deals?

Who should attend?

  • Service providers
  • Sales leaders
  • Pricing team members
  • Solution design and contracting leads
  • Engineering services leads
  • Analyst and advisory relations
  • Engineering department heads, Head of information systems and R&D
  • CPOs
  • Global sourcing heads, category managers, sourcing strategy professionals, vendor management leaders
Arora Achint
Partner
Everest Group
Manchanda Amanpreet
Practice Director
Everest Group
Nishant Udupa Gray square 2
Practice Director
Everest Group
Aniruddha edited

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