Wipro to buy HealthPlan services for $460 million
Wipro Ltd will spend $460 million to buy HealthPlan Services, a Florida, USbased technology firm that offers solutions to health insurance firms, making it the third buyout by the Bengaluru-based software services firm in less than three months.
The purchase is the fourth acquisition by Wipro, India's third largest information technology (IT) firm, since the beginning of the fiscal in April 2015. Significantly, the flurry of buyouts suggests Wipro's new chief executive officer, Abidali Z Neemuchwala, is looking at mergers and acquisitions to help achieve the ambitious target of more than doubling Wipro's revenue to $15 billion by 2020.
Since Neemuchwala joined Wipro as chief operating officer in April last year, Wipro has spent over $760 million in making these four buyouts. The acquisitions are being made at a time when Wipro, which recorded revenue of $7.08 billion for the year ended 31 March 2015, is expected to grow at best 4.2% in this fiscal, the slowest since 2009-10 (when revenue expanded 1.6%).
"The partnership with HealthPlan Services positions Wipro to participate in the shift of the US health insurance industry towards a consumer-centric business model," said Jeffrey Heenan Jalil, senior vice-president and head of healthcare life sciences and services business. The shift Jalil is referring to are the opportunities created for domestic technology outsourcing firms after US President Barack Obama's ushered reforms to provide affordable healthcare to uninsured Americans by the Affordable Care Act law, or Obamacare.
After Obamacare, people in the US have to buy insurance themselves rather than employers, thereby making technology vendors, including Cognizant Technology Solutions Corp. and Tata Consultancy Services Ltd, receive more outsourcing work from insurance marketers and hospitals. In an all-cash deal, Wipro will buy HealthPlan Services from Water Street Healthcare Partners, a private equity firm, which bought the company from its then management in 2008.
Wipro, which had $4.63 billion in cash at the end of December, did not say how it will finance the transaction. "The transaction is yet to close. Our choices of sources will be driven with the objective of maintaining an optimal capital structure," said a company spokesman. HealthPlan Services was founded in 1970 and recorded a revenue of $223 million in 2015. Wipro expects to close this acquisition in the coming two-three months, implying that the company expects full revenues from the buyout from the JulySeptember period of this year.
"It is the business model of the future because of the opportunity in the healthcare space and we are excited overall," Jatin Dalal, Wipro's head of finance, said in a conference call late on Thursday evening. To be sure, Wipro's profitability in its healthcare unit, which brings about $800 million in business, will take a hit of 50-80 basis points on account of amortization costs related to the latest buyout. One basis point is one-hundredth of a percentage point. But Dalal downplayed this negative impact, saying the company has levers to improve profitability in the coming years.
"This acquisition is not about improving profitability. This is about increasing our presence in the healthcare space, about getting a business model that is part of our vision" Some experts believe HealthcarePlan Services will help Wipro to grow its business division. "The acquisition of HealthcarePlan Services adds a frontend platform and capability that was missing from Wipro's healthcare operations solution set, and moves it in the direction of enabling an end-to-end healthcare architecture that provides a more comprehensive view of members," said Barbra Sheridan McGann, executive vice-president, business operations research at HfS Research, an outsourcing-research firm.
In December, Wipro first spent $78 million to buy Cellent, a German technology company that implements and maintains SAP (systems applications and products) software for clients in automobile and manufacturing segments, and later bought a securities processing and fund administration services provider, Viteos Group, for $130 million. Cellent had $92 million in revenues at the end of December 2014, while Viteos Group had $26.5 million in revenue at the end of March last year.