India’s biggest PE deal: Blackstone to buy HP’s 60.5% Mphasis stake

In the biggest private equity deal in the country, US-listed Blackstone on Monday said it will invest up to Rs 7,071 crore to acquire a majority stake in mid-sized IT services exporter Mphasis from Hewlett Packard Enterprise. Blackstone India will acquire HP’s 60.5 per cent stake in the company at Rs 430 apiece, which will trigger an open offer for acquiring 26 per cent from other shareholders of Mphasis, for which it has announced a price of Rs 457.50 a share. Depending on the outcome of the open offer, the US based asset manager will pay anything between Rs 5,466 crore and Rs 7,071 crore for taking control of the IT company.

One of the biggest draws for the private equity firm was a guarantee by HP to source at least $990 million of work from the company over the next five years as part of a 11-year contract, Blackstone India’s Senior Managing Director Amit Dixit told reporters over a conference call. At present, HP accounts for over 27 per cent of the revenue, which is slated to touch $1 billion this fiscal for the Bengaluru-headquartered company, he said. 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, non-HP business has been growing at 20 per cent year-on-year.

Dixit added Mphasis will also get recognised as a preferred partner by HP, which will be revenue accretive for the company. Investors were not so enthused by the deal and the stock was trading 2.87 per cent down at Rs 454 on BSE during the pre-close session. Announcement of the transaction after signing of a definitive agreement between the two parties ends speculation over the suitor for the IT exporter, which was put on the block by Hewlett Packard (HP) Enterprise.

India’s Fifth largest IT company Tech Mahindra and private equity fund Apollo Global Management were also in the race. Dixit today said Blackstone, which has invested over $6 billion in private equity and realty transactions in the country over past decade, has taken a long-term view while arriving at the outbidding valuation and was not driven by recent performance of Mphasis scrip.

He said the fund invests for a time horizon of five-seven years in each investment and is very bullish on the prospects of IT sector, in which it has invested $1.4 billion in three bets, including the BPO Intelenet and software as a service firm IBS Software and now Mphasis. 

Dixit said Blackstone’s global portfolio companies have revenue of over $86 billion, presenting a potential spend of over $5 billion per year. Citing how Intelenet benefitted from this in the past, he said all the bidding for investee company’s IT contracts will be done at an “arm’s length” by Mphasis. Mphasis’ focus on the lucrative banking, financial services and insurance vertical, retention of clients including the top-billing ones and the strong performance in the emerging digital space were big positives, he said.

Terming Mphasis’ leadership team as a strength, Dixit said Blackstone will continue with the same top management.