Blackstone to buy Mphasis in deal that can top $1 bn

Global private equity fund Blackstone on Monday said it had reached agreement with Mphasis to buy a majority 60.5 percent stake in the leading IT services player in a deal valued at between Rs.5,466 crore-Rs.7,071 crore ($825 million-1.1 billion).

“As per the Takeover Code in India, the transaction will trigger a mandatory open offer for a purchase of additional 26 percent shares of the company and the acquiring entity has released a public announcement to the stock exchanges,” Blackstone said in a statement here.

The acquisition will also be the US-based Blackstone’s largest IT deal in India.

The shares are being acquired from Hewlett Packard Enterprise (HPE) that currently owns 60.5 percent in Mphasis.

“Blackstone will pay a purchase price of Rs.430 per share,” said the statement.

The city-based Mphasis is listed on the National Stock Exchange (NSE) and BSE.

The shares of Mpasis, however, declined Rs.12.95 or 2.77 percent to Rs.454.45 from an opening price of Rs.472.30 and previous closing rate of Rs.467.40 on the BSE at the end of trading session.

JM Financial Institutional Securities Ltd. is the lead manager for the deal.

HPE’s exit is in alignment with its capital allocation priorities and will have no adverse impact on its commercial ties with Mphasis.

“While our financial relationship is changing, the business and commercial relationship with Mphasis remains an important part of our service delivery strategy,” said HPE enterprise services vice-president Mike Nefkens in the statement.

HPE also plans to renew its master service agreement with Mphasis for another five years post-transaction, expected to close in second half of this calendar fiscal.

“We remain committed to our strategic partnership with Mphasis and provide customers with high level of service and support they expect from us,” he said.

Mphasis’ last 12 months revenue as of December 31, 2015 was Rs.59,996 million ($904 million), while net profit was Rs.6,923 million ($104 million).

It has large revenues from banking and financial services and insurance apart from new generation services, including digital solutions.

Mphasis serves marquee clients across the globe, including six top global banks, 11 out of 15 top mortgage lenders and three top global insurance firms.

The company has about 24,000 employees across 16 countries.

Commenting on the deal, global advisory firm Gartner research director Arup Roy said the takeover by Blackstone would give Mphasis an opportunity to come out of shadows it walked into since EDS acquired majority stake (52 percent) in it for Rs.1,748 crore in June 2006 and after HP bought EDS for $13.9 billion in May 2008.

“Although, Mphasis had a legal identity with its own business and go-to-market, it was not able to establish as a visible and credible provider. The Blackstone buyout will allow it to come out of its ‘oblivion status’ and return to mainstream IT services,” Roy said in a statement.

Meanwhile, Mphasis chief executive Ganesh Ayyar told reporters here that all the employees were excited over the Blackstone take-over of the company, which has huge potential for accelerated growth, with continuity, stability and predictability.

“I feel like a kid in the toy shop, excited about the potential that is ahead of us. We want to see the company in the top quadrant of growth and value,” he said.

Admitting that HPE and direct business were its top revenue generators, Ayyar said the latter contributed to 50 percent of its revenue, growing at 14 percent annually, while the former accounted for 14 percent annually though declining 19-21 percent per annum.

“The transition to Blackstone will give us a minimum guarantee and an opportunity to grow it further, as it will have an impact on the company’s overall growth,” he said.

Under the MSA, HPE will commit minimum revenue, escalating year-on-year over year and totalling $990 million over the next five years.

HPE also plans to include Mphasis in its preferred provider programme, which opens up opportunity for accruing additional revenue.

Ayyar also hoped the transaction would check attrition at the middle and top levels.

Image – IANS