Computer Sciences Corp.'s (NYSE:CSC) four-year dealmaking drought ended this week, as the company announced its $1.3 billion acquisition of Covansys (NASDAQ:CVNS). With CSC shares falling only $0.14 to $55.83, Wall Street seems to like the deal.
Covansys provides information technology (IT) consulting services. Back in the early 1990s, this U.S.-based company started to move into India to capitalize on the lower wages and skilled workforce. It now has 6,400 employees in areas like Bangalore, Chennai, Vadodara, and Mumbai.
In the highly competitive IT sector, offshore strategies are becoming increasingly vital. Major players like Accenture (NYSE:ACN) and IBM (NYSE:IBM) are investing aggressively in India. CSC's offshore strategy has lagged rivals thus far, but the Covansys deal should provide a nice boost, doubling the company's employee count in India to roughly 14,000.
The deal also expands CSC's footprint into new industries. "A major focus for CSC has been on the insurance sector," said Michael Guilbault, senior analyst for Technology Business Research, when I interviewed him recently. "But with the acquisition, the company will get more exposure to financial services, retail, telecom, and high-tech sectors."
With its continued hiring in India and elsewhere, and impending expansion from the Covansys deal, the company's lower overall wage expenses should help CSC improve its profits. Integrating Covansys could take some time for CSC, but Foolish investors might see improved results later this year.
Further homegrown Foolishness:
- Kanbay Sells Out. So Who's Next?
- Foolish Forum: Bullish on Indian IT?
- Are Tech Buyouts the Next Big Thing?
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 3,449 out of 27,827 in CAPS. The Fool has a disclosure policy.
