Blackstone to acquire Mphasis for Rs 7,071 crore

HP commits business worth Rs 6,500 cr over five years; PE major to continue with existing management

Private equity firm Blackstone on Monday announced it had entered into an agreement with Hewlett-Packard Enterprise (HP) to buy a majority stake in Mphasis for up to $1.1 billion (Rs 7,071 crore).

The deal will take Blackstone’s investment in the Indian information technology sector to $1.4 billion (Rs 9,250 crore at  Rs 66 a dollar), making technology its second biggest portfolio after real estate. It will also be the largest investment for Blackstone, as well as for private equity in Indian infotech services.

“We believe the sector is poised for growth. We like this sector because we have the ability to add value. It is a rare opportunity for us to acquire an asset like Mphasis, which is expected to be a $1 billion (Rs 6,600 crore) revenue firm soon,” said Amit Dixit, co-head, Blackstone India.

Blackstone will pay Hewlett-Packard Rs 430 per share for its 60.5 per cent stake in Mphasis. For the additional 26 per cent to be bought through an open offer, Blackstone will pay Rs 457.50 per share. The Mphasis stock opened at Rs 472.3, up 1 per cent, before touching a high of Rs 486 and closing at Rs 454 on Monday. “For the controlling stake, we had to negotiate a price. For the open offer, we have taken the 60-day average price,” Dixit said.

He added Blackstone’s decision was driven by the commitment of $990 million (Rs 6,534 crore) guaranteed work from Hewlett-Packard for Mphasis.  Mphasis’ revenue from work done for Hewlett-Packard has declined from $191.3 million (Rs 860.85 crore) in the first quarter of 2011-12 to $55.5 million (Rs 360.75 crore) in the third quarter of 2015-16.

“We have been experiencing a decline at the rate of 21 per cent. Hopefully we can bring some growth back. From the Blackstone portfolio firms, we have an addressable market of $1 billion (Rs 6,600 crore),” said Ganesh Ayyar, chief executive officer, Mphasis.

“There is an upside for Mphasis from Blackstone’s portfolio companies. In 2007 when we had acquired Intelenet, we were able to deliver seven customers from our portfolio firms, which was 20 per cent of their revenue,” Dixit said.  Blackstone will continue with the company’s management and has no plans to delist Mphasis. “The management has delivered above industry average growth. It has an action plan for the firm’s top line,” Dixit pointed out. Mphasis’ trailing 12 months’ revenue on December 31, 2015, was $904 million (Rs 6,000 crore) and profit after tax was $104 million (Rs 692 crore).

BLACKSTONE’S STAKE IN INDIAN TECH SPACE

Intelenet, September 2015
Rs 2,558 cr

IBS Software,  December 2015
Rs 1,150 cr

Mphasis,  April 2016
Rs 5,466-7,071 cr

Deal street

• The deal will take Blackstone’s investment in the Indian IT sector to Rs 9,250 cr, making technology its second biggest portfolio after real estate
   
• It will also be the largest investment for Blackstone as well as for private equity in Indian infotech services