Apax to help Zensar acquire & consolidate

Firm is known for creating value through M&A route

London-headquartered Apax Partners has outlined a ‘tuck-in’ acquisition strategy for inorganic growth of Zensar Technologies in which it acquired 23.2 per cent stake for Rs 835 crore last month. The global private equity (PE) firm, one of the early investors in Apple Inc, acquired the stake in the Harsh Goenka-promoted information technology (IT) company from UK-based peer Electra. The exit enabled Electra generate a return of 19 times over 18 years of its investment.

Apax is known for driving value creation through mergers and acquisition (M&A) for the IT companies it invests in. In 2011, it invested $330 million in iGate, which helped it acquire a controlling stake in a much larger rival, Patni Computers. When French IT giant Capgemini acquired iGate for $4 billion earlier this year, Apax got $1.15 billion for its 28.9 per cent stake in the company. This brought a  3.7 times return in four years. “The IT sector had a very strong growth over the past 20-25 years, but we believe there is still a very long runway for value creation beyond this,” says Shashank Singh, partner and head of the India office at Apax, noting that not many sectors globally at $100 billion scale that grow at 10-15 per cent annually.

Zensar is the third investment in the IT space by Apax in India, of a total of six worth $1.45 billion, made in past eight and a half years. In 2013, Apax had bought GlobalLogic for $420 million. Other investments include non-banking financial companies, Shriram City Union Finance and Chola, along with Apollo Hospitals, which it has already exited.

“We feel there is a lot more growth possibility in the areas Zensar operates  in, through both organic and inorganic routes, which we can support,” says Singh. Zensar has differentiated offerings in the retail, manufacturing, and insurance verticals, where it provides services in digital enterprise, beside IT infrastructure management and application development.

Apax believes it can help Zensar penetrate deeper in the market by helping it acquire new clients through its own portfolio of 40 investee companies.It will help Zensar acquire new companies to achieve the inorganic growth potential. “The market of IT services is consolidating, and we would like Zensar to be a consolidator. We see the potential for it to do tuck-in acquisitions in the areas it operates in. Also, there is the possibility for larger acquisitions — but that might be in the future,” says Singh.

Tuck-in acquisitions are made for the sole purpose of merging it into a division of the acquirer. The PE firm believes in active participation in investee companies’ strategy to create value. Singh has been invited to sit on the board of Zensar Technologies, which will help the firm in participating for its growth.