10th Magnitude to become latest Cognizant acquisition

Cognizant, professional services company based in Teaneck, N.J., has agreed to acquire 10th Magnitude, a cloud consultancy specializing in the Microsoft Azure platform.

The transaction, expected to close in the third quarter of 2020, would represent the sixth cloud-related Cognizant acquisition in 2020 and the second cloud consulting deal in as many months. Cognizant in August completed its purchase of New Signature, a consulting firm based in Washington, D.C., that focuses on Azure, Microsoft 365 and Dynamics 365.

Like New Signature, 10th Magnitude's cloud personnel will join Cognizant's recently created Microsoft Business Group. Cognizant also maintains key partnerships with companies including AWS, Google, IBM, Oracle, Salesforce and ServiceNow, according to Cognizant.

The pending Cognizant acquisition offers additional evidence that the pace of merger and acquisition activity in the IT service sector is ramping up again after a pandemic-inspired lull. Deals slowed dramatically in March during the early days of the COVID-19 outbreak and related economic downturn.

"The pipeline is thawing," said Martin Wolf, president of Martinwolf, an M&A advisory firm based in Scottsdale, Arizona. He suggested more deals may surface as soon as this week. "We are seeing a renewed interest in M&A, with some deals on the shelf in early COVID now fast-tracking to close," he noted.

The pipeline is thawing.

He said the anticipation of a capital gains tax increase that could emerge in the event of a Democratic party sweep in the November election is affecting seller behavior.

Jeff Kaplan, managing director at ThinkStrategies, a consulting firm in Rockport, Mass., said the Cognizant-10th Magnitude transaction also fits a pattern of growing cloud services demand amid the pandemic.

"This is an indication that the pandemic has created even greater demand for cloud-based services and solutions that is translating into a new series of acquisitions to enable the large firms to keep pace with their corporate clients' rapidly changing needs," Kaplan said. Cognizant generated revenue of $16.8 billion in 2019.

Cognizant said the purchase of 10th Magnitude, based in Chicago, would help it add development and managed services hubs in major U.S. cities, while also providing data center transformation, application modernization and AI-based "data intelligence" services.