New Jersey-headquartered marketRx is closely held and has a focus on providing outsourcing services to global life sciences companies in the pharmaceutical, biotechnology and medical devices segments. It is one of the new breed of outsourcing companies, in what is termed the knowledge process outsourcing (KPO) area. KPO refers to high value-add services which are outsourced to specialised service providers.
Nasdaq-listed Cognizant is an information technology and business process outsourcing (BPO) firm. It has 49,000 employees currently which are projected to increase to 55,000 by 2008. About two-thirds of Cognizant's employees are based in India. It derives about half of its revenues from financial services (including insurance, banking and transaction processing), around 25% from healthcare and the rest from retail, manufacturing, logistics and other areas. It has given investors guidance that 2007 revenues will be around $2.1 billion - an increase of 48% over 2006.
Via the deal, Cognizant gains capabilities in the life sciences sector including research and development, manufacturing, sales and marketing.
marketRx has an impressive client list comprising 75 life sciences companies including the 20 largest pharmaceutical companies and four out of the top five biotechnology companies worldwide. Cognizant hopes to leverage the acquisition to offer existing clients a broader range of outsourced services as well as win new clients based on the expertise marketRx has developed.
marketRx was founded in 2000 and currently has 430 employees: 260 in Gurgaon in India, 160 in four locations in the US, and 10 in Europe. Its 2007 revenues are expected to be around $40 million. The deal has been transacted at a revenue multiple of around 3.4 times.
The acquisition represents a less than 2% addition to revenue for the much larger Cognizant but the attractiveness of the target can be gauged by the keenly contested auction for marketRx. Mumbai-based Avendus and US-based William Blair advised marketRx and industry giants such as Infosys and Wipro were among the bidders.
One of the reasons BPO firms are keen to move up the value chain into KPO is that the revenue per head is much higher for KPO firms. CognizantÆs revenue per employee is around half that of marketRx.
The sale provides an exit to marketRxÆs venture capital investors, Sequoia Capital (earlier WestBridge) and Andwel.
Credit Suisse initiated coverage of Cognizant recently with an outperform rating and a price target of $53, representing a price earnings multiple of 35.5 times projected calendar 2008 earnings. Cognizant closed down 4.3% on Nasdaq at $40.02 on Friday.
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