case study

Mergers and Acquisition

Cognizant Case Study

Introduction

Few organizations have expertise integratingbusiness after mergers and acquisitions activity,yet business success is dependent uponsuccessful integration of its People, Process,Technology and a well planned M&A strategy.Without a well thought and effectively managedplan, the merger or acquisition risks anincomplete integration, business frustration, lossof critical staff, higher costs and an unnecessarycomplex environment. Successful integrationstarts before the merger or acquisition. Duediligence must be used to develop an integrationstrategy, plan and team that will give confidenceto all stakeholders. Identifying key decisionsaround which applications, infrastructure and ITprocesses can go forward and key actions tocreate the new organization after the merger oracquisition is also a necessity.

Global merger and acquisitions in the insurancesector have reached all time record of 148.7billion dollars in 2008, up 34 per cent from theprevious year. Strategic activity accounted for 97per cent of total activity in the industry, ascompared to 83 per cent in 2007. Insurancecompanies in the United States made themaximum number of acquisitions. US-basedinsurers made acquisitions worth $71.6 billion, upby 102 per cent from the deals in 2007. Dealsworth over $10 billion each accounted for nearly

36 per cent of 2008 volume, which stood $53.4billion, up from just 10 per cent in 2007 whereasdeals in the range of $1 billion to $5 billion rangemade up 25 per cent of the total with anannounced value of $36.7 billion.

Key Challenges in Mergers &Acquisitions

The post-merger integration phase covers theoperational part of any merger project. Often thisphase determines if the merger becomes asuccess or failure. The four key aspects of anybusiness organization are typically Strategy,People, Process and Technology. Many of thecritical success factors of the post-mergerintegration are “soft” factors, which involvepeople and their interactions with technology andprocess. Value is created by focus and adherenceto strategy.

Therefore, Cognizant feels it is necessary to focusattention on issues such as

n Development of a new management structurefor the new, larger organization; especially over-coming leadership problems in very large units

n Bringing together formerly separate units fromboth former organizations

n Allocation of clear roles and responsibilities inthe emergent merged entity

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n Communication of the new strategic objectivesand the new vision of the merged organization

n Implementation of a new shared corporate culture and management culture

n Integration of the multiple IT organizations

n Reduction in redundancy and duplication of ITsystems

n Harmonization of management compensationand management incentive systems

n Overcoming of language barriers and countryspecific cultural differences

n Overcoming of staff’s suspiciousness of theother organization

n Knowledge transfer among units that are to beintegrated

n Maintenance of customer and intermediaryrelationships during integration

n Employees who fear being earmarked redun-dant

n Impact on the existing corporate culture

Cognizant’s IT Integration Approachduring M&A

Cognizant’s roadmap to support clients duringMerger and Acquisition transaction hasstructured mile stones and processes tocontinuously raise the bar in order to executeeffectively.

Target Assessment

n Identify and assess sources of synergy (costand revenue), costs for synergy extraction andaccrual of long term benefits

n Analyze the existing system architecture to decide if it is ready to accommodate the systems of the target organization. In an insur-ance industry merger, this would also includeanalysis of the fitment of various products inthe portfolio of the merging companies

n Assess existing staff skills and carry out adequate resource planning, a product re-alignment exercise might also be carried out

n At the end of this phase, the IT organizationarticulates the principles that would guide the integration decisions, system integrationstrategy and approximate timelines for achieving each milestone of integration

Pre-merger Planning

n Undertake Due diligence and Assessment ofintegration effort

n Finalize the Insurance portfolio for re-alignmentbased on the list from ‘Target Assessment’phase

n Identify possible change in company rating andanticipate the rating agency reaction

n Structure the deal to best monetize the assets

n Plan for Day One and conduct internal dry runs

Planning for M&A

n Pair IT and business across merged entity toform cross functional teams to developdetailed area wise integration plan & preparefor joint IT governance

n Conduct joint dry runs and perfect executionplans

n Enable communication to all stakeholders

n Provide BAU services (Helpdesks, Productionsupport, System availability, Scalability, etc)

n Implement execution plans and programs cov-ering functional areas, applications, data andinfrastructure elements

n Enable fulfillment of regulatory and legalrequirements

n Complete Phase 1 of consolidation of book ofbusiness, migration of data and customers,product rationalization, infrastructure consoli-dation

n Enable cross-selling and up-selling

n Refine and detail IT governance plans

n Fine tune the execution plans

Execution

Effective senior management team for execution

n Common Vision and Strategy Workshops

n Experiential Learning Workshops

n Creating effective governance groups

New culture supporting new enterprise strategy

n Planning Participation

n Team Launch Workshops

n Coaching

n Interactive simulations

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Meet integration and business operation goals

n Implement the new organization design & ITgovernance plans

n Execute HR policies, procedures and processesthat support the Guiding Principles

n Implement business processes that match cus-tomer, cost, quality and employee satisfactiongoals

n Complete phase 2 of consolidation of book ofbusiness, product rationalization, applicationintegration and rationalization, Infrastructureconsolidation

Deliver on Targets

n Implement the post ‘Execution phase’ plans

n Complete Phase 3 of Application integrationand rationalization, and Infrastructure consoli-dation

n Enable automatic consolidation of Book ofBusiness based on Straight-Through-Processing

n Comprehensively implement IT Governanceplans

Unlocking Value

n Integrate to unlock the true potential of theassets through the synergistic combinationsidentified from the ‘target assessment’ phase

n Unlock value based on optimal levels of appli-cation and infrastructure rationalization (in-line with business model)

n Achieve strategic business agility based onplug and play IT and Business com7ponents

n Stress test the strong foundation developedfor future M&A and strengthen as necessary

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World Headquarters

500 Frank W. Burr Blvd.Teaneck, NJ 07666 USAPhone: +1 201 801 0233Fax: +1 201 801 0243Toll Free: +1 888 937 3277Email: inquiry@cognizant.com

© Copyright 2009, Cognizant. All rights reserved. No part of this document may be reproduced, stored in a retrieval system, transmitted in any form or by any means, electronic, mechanical, photocopying, recording, orotherwise, without the express written permission from Cognizant. The information contained herein is subject to change without notice. All other trademarks mentioned herein are the property of their respective owners.

India Operations Headquarters

#5/535, Old Mahabalipuram RoadOkkiyam Pettai, ThoraipakkamChennai, 600 096 IndiaPhone: +91 (0) 44 4209 6000Fax: +91 (0) 44 4209 6060Email: inquiryindia@cognizant.com

Australian Headquarters

Suite G17A, The Jewel Business Center566 St. Kilda Road, MelbourneVictoria, Australia 3004.Ph: +61 3 9526 8470Fax: +61 3 9526 8410inquiryaustralia@cognizant.com

About Cognizant

Cognizant (NASDAQ: CTSH) is a leading provider of information technology, consulting and businessprocess outsourcing services. Cognizant’s single-minded passion is to dedicate our global technology andinnovation know-how, our industry expertise and worldwide resources to working together with clients tomake their businesses stronger. With over 50 global delivery centers and 64,100 employees as of June30, 2009, we combine a unique onsite/offshore delivery model infused by a distinct culture of customersatisfaction. A member of the NASDAQ-100 Index and S&P 500 Index, Cognizant is a Forbes Global 2000company and a member of the Fortune 1000 and is ranked among the top information technology companiesin BusinessWeek’s Hot Growth and Top 50 Performers listings.

Start Today

For more information on how to drive your business results with Cognizant, contact us atinquiry@cognizant.com or visit our website at www.cognizant.com.

Partnering Clients for IT Integration during M&A

System consolidation& modernizationstrategy

InfrastructureIntegration and systemizing corporateand institutional functions

Application portfoliorationalization

GeneralInsurerin US

Large LifeInsurer in US

GeneralInsurerin US

GeneralInsurerin US

Large LifeInsurer in US

System modernization strategy atthe enterprise level for multiple companies with different businessmodels and spanning across all core insurance process

n Reduced system complexity by rationalizationof number of policy administration platformsfrom 15 to 5 and claims platforms from 7 to 3

n Reduced maintenance cost by around 15-25%

n Reduced cost by more than 1 million USD spentper month towards transmission services

n Increased productivity due to standardizedtools and products enterprise-wide.

n Anticipated cost savings due to suggested con-solidation of 12 products from 4 lines of busi-ness unto another existing business platform

n Expected increase in cross-selling and streamlined marketing due to consolidated set of products and supporting platforms

n Savings of 40% of annual IT expenditure

n 30% decrease in average speed toanswer within the first year

n Reduced the maintenance costs by $9million/year

n Additional $4 million were saved in projectimplementation costs attributed to Cognizant’sOnsite-Offshore delivery model.

Integration of infrastructureof acquired company anddecommissioning the systemof acquired company

Optimization of the business insurance portfolio by reducing the number of products and platforms used across the businessunits and consolidate

Rationalization of myriad of policyadministration systems on multipleplatforms, creation and implementa-tion of technology platform encom-passing policy administration, billingand agency management

Post-merger business operationsconsolidation

Development of an integratedsolution involving a combinationof sun-setting, consolidation andmigration phases across theportfolio of applications

Client Description Brief Description Business Benefits

BusinessTransformation