Private equity firm Blackstone on Monday said it will buy out HP Enterprise’s stake in Mphasis for up to Rs 7,071 crore ($1.1 billion), marking the largest IT deal for the US-based firm in India.
Hewlett Packard Enterprise (HPE) currently owns 60.5 per cent of BSE and NSE-listed Mphasis. “Blackstone will pay a purchase price of Rs 430 per share to HPE… As per the Takeover Code in India, this transaction will trigger a mandatory open offer for a purchase of additional 26 per cent shares of the company,” Blackstone said in a statement.
Reacting to the news, the stock of Mphasis opened higher by 2.03 per cent on BSE at Rs 475.90. Based on the open offer subscription, the purchase price consideration will vary between Rs 5,466 crore and Rs 7,071 crore ($825 million – $1.1 billion), it added. HPE and Blackstone have agreed on the terms of a Master Services Agreement (MSA) which HPE proposes to sign with Mphasis, post approval by Mphasis’ Board of Directors and shareholders.
The duration of the MSA is five years with three automatic renewals of two years each. “Under the MSA, HPE has proposed to commit a minimum revenue amount escalating year over year and totalling $990 million over the next five years. Also, Mphasis will be included in HPE’s Preferred Provider Program opening up significant additional revenue opportunities,” it said.
Mphasis’ last 12 months revenue as of December 31, was about $904 million and net profit of $104 million. It has deep vertical expertise in banking, financial services and insurance (BFSI) sector and strong portfolio focus on New Generation Services including digital solutions.
Mphasis’ marquee customers include six top global banks, 11 out of 15 top mortgage lenders, and three top global insurance companies. It has roughly 24,000 employees across 16 countries.
The sale is expected to complete in the coming months, subject to customary closing conditions and approvals. “We see large potential going forward driven by Mphasis’ world-class delivery capabilities and its access to Blackstone’s portfolio of companies across the globe,” Amit Dixit, Senior Managing Director and Co-Head of Private Equity in India at Blackstone, said.
In a filing to BSE, Mphasis said Blackstone along with Marble I and Marble II, have made an offer to buy 26 per cent stake in HP-owned IT firm Mphasis for over Rs 2,513 crore. Under the open offer, the entities will acquire up to 5.49 crore equity shares, representing 26 per cent stake, at a price of Rs 457.54 per equity share (the offer price).
This aggregates to total consideration of over Rs 2,513.18 crore, in cash, subject to the terms and conditions, it said. This is Blackstone’s biggest deal in India and outpaces its last year’s $383-million acquisition of most of the offshore BPO operations of London-headquartered Serco (formerly Intelenet) and $170-million investment in Trivandrum-based IBS Software.
According to market sources, Blackstone has outbid two other contenders — Apollo Global Management and Tech Mahindra. Mphasis has reduced its dependence on HP’s business (from 65 per cent contribution to revenues some five years ago to 34 per cent in 2014-15).
Also, its non-HP business has been growing at 20 per cent year-on-year. Jerry Rao had founded Mphasis 17 years ago. It was sold to EDS (Electronic Data Systems) and became part of HP after the latter’s $14-billion buyout of EDS in 2008.
Over the last few years, Mphasis has been focussing on growing direct organic business especially in banking, capital markets and insurance verticals that together contributes about 55 per cent its of the revenues.
In the last few years, the IT services sector has seen big deals with the likes of Capgemini buying IGATE for close to $4 billion (iGATE had bought Indian firm Patni previously)as well as stake buys like that by Baring in Hexaware (up to Rs 2,745 crore in August 2013) and Virtusa in Chennai-based Polaris (Rs 1,173 crore in November 2015).
Blackstone established its office in India in August 2005 and has since committed about $6 billion to companies in India between private equity and real estate. Of this, about $2 billion has been invested in 2015 alone. Overall, it has invested in 41 companies.