NEC, NTT, Dell in race for majority stake in Hexaware

Buyout funds also tapped, firm valued at $800 million

The race to acquire a majority stake in Hexaware Technologies — one of India’s leading mid-sized IT services company — is gathering momentum, with at least three global majors and a clutch of private equity buyout funds joining the fray.

Japan’s NEC Global, NTT Group and the US PC manufacturer and services player, Dell, have initiated their negotiations with Hexaware’s founder and chairman Atul Nishar and the two private equity investors in the company, General Atlantic and Chrys Capital, said three IT sector and investment banking sources.

According to them, Morgan Stanley and Credit Suisse, the two investment bankers advising Hexaware’s shareholders to find potential suitors for the company, have even approached marquee private equity buyout funds like Advent, Carlyle and Providence Partners.

Even Indian players like L&T Infotech are also expected to bid.

The Hexaware stock jumped close to seven per cent on Tuesday, on the buzz of a possible buyout soon.

However, Hexaware’s steep valuation expectation of close to $700-$800 million (Rs 3,500 crore-Rs 4,000 crore) is expected to act as a spoiler, said a source, aware of the ongoing negotiations. “At 15 times CY11, Ebidta and around two-and-half-times sales, many will find it tough to match the expectations,” said an analyst, on condition of anonymity.

Talks, however, are still at a preliminary stage.

Hexaware recorded revenue of Rs 1,450 crore for CY2011 from its 51 clients. The firm ended the financial year with 8,317 employees.

While the promoter stake stands at 28 per cent, General Atlantic Partners (GAP0 owns a little less than 15 per cent, while Chrys Capital has 9.77 per cent stake in the company.

When contacted, Hexaware’s spokesperson told Business Standard, “Such market rumours and speculation have been there for the last nine years. Hexaware would not like to respond to such speculation.” So far, the company management, including Atul Nishar, has been vehemently denying any possibility of a sellout.

GAP’s spokesperson responded by saying, “It is our policy not to comment on activities related to our portfolio companies." Chrys Capital officials also did not want to comment on speculation.

Among the potential suitors, while NEC and NTT’s spokesperson did not respond to Business Standard’s emails, Dell India spokesperson replied, saying, "It is not our policy to comment on market rumours or speculation."

Hexaware Technologies, founded in 1990, is one of the earliest story of Indian IT industry. Its founder Atul Nishar, before forming this company, had started Aptech computer education firm.

Unlike the large caps, the company mainly focusses on four verticals. These include banking and capital markets (28.3 per cent), healthcare and insurance (13.8 per cent), travel and transportation (23.2 per cent), and other emerging segments (34.7 per cent). From an application perspective, Hexaware has presence in services line like application development and maintenance, enterprise solutions, testing, remote infrastructure management services, BPO and business intelligence.

Among the mid-cap firms, Hexaware has been on a run over the last five to six quarters. In that period, it has managed to win six large deals (contracts above the $25 million mark). Of these, three were in the $100 million range, taking the cumulative size of these six deals to $600 million. Their guidance for the CY 2012 is $370 million, a 20 per cent year-on-year hike.

The Japanese companies have been eyeing the Indian IT space quite aggressively in recent times. Earlier this year, $124-billion behemoth NTT Group bought a majority in Netmagic, a data storage firm. Last year, NTT Data Corp had also acquired Hyderabad-based Intelli Group for $200 million, the US-based Keane International, which has significant India presence, for $1.2 billion. NTT also was in advance negotiations with Patni Computer’s erstwhile promoters and had even evaluated Satyam Computers before Tech Mahindra clinched the deal.

Compared to NTT, $39 billion NEC has been relatively muted in India.