PE Player Blackstone bets big on Mphasis, to acquire additional 26% stake

Blackstone, Abu Dhabi Investment Authority, UC Investments and GIC to invest $2.8bn to acquire majority stake

Private equity giant Blackstone has made an open offer to acquire an additional 26 per cent stake in Bengaluru-based information technology services firm Mphasis for Rs 1,677.16 per share, or Rs 8,262 crore (around $1.1 billion).
 
The open offer has been triggered as Blackstone currently holds around 56 per cent in the company. The US firm had acquired 60.5 per cent in Mphasis in 2016 for a consideration of $1 billion. This time around, Blackstone is also bringing in strategic investors such as Abu Dhabi Investment Authority (ADIA), UC Investments, and GIC. All four will jointly hold no more than 75 per cent in the company. Sources in the know said Blackstone would continue to be the largest shareholder in the company.
 
According to a BSE filing, an older fund of Blackstone, Blackstone Capital Partners VI, agreed to sell its 55.31 per cent stake to Blackstone Capital Partners Asia and Blackstone Capital Partners VIII. While the deal for the 55.31 per cent stake was a simple shareholding transfer within the funds, since Blackstone decided to get strategic investors on board, it had to call for an open offer.
 
“Mphasis has been a very strong story for Blackstone. When it acquired the company in 2016, the market cap was $1.4 billion; today it is at $4.5 billion. Within five years Blackstone has tripled its investment. But with the way technology has been adopted, especially since the pandemic, the PE player is confident that it can take Mphasis from the current $4.5 billion market cap to $10 billon in the next four years,” said a source close to the details of the transaction.  Based on the open offer subscription, the blended purchase price will vary between Rs 1,452 and Rs 1,497 per share (12-16 per cent premium to 12-month average price and 3-6 per cent discount to 6-month average price), and the purchase consideration will vary between Rs 152 billion to Rs 210 billion (or, approximately $2.0 billion to $2.8 billion).

 
Nitin Rakesh, CEO and executive director of Mphasis, said: “We are gratified to continue our partnership with Blackstone, both as a leading investor as well as our client. We believe Blackstone’s sustained strategic partnership will help the company accelerate its growth and scale new heights. Sovereign and pension funds co-investing is a testimony of long-term commitment and a vote of confidence of a marquee set of shareholders.”
 
The company’s stock price jumped as much as 6.3 per cent to Rs 1,805 per share on Monday. The shares closed at Rs 1,725.25, up 1.6 per cent compared to the last close.
 
“The company will benefit from traction in the Blackstone portfolio (overall opportunity of S$1.5 billion). Further, we believe Mphasis can benefit from cross-selling to companies of new investors. This, coupled with less exposure to impacted verticals, capability to mine clients effectively, market share gains via vendor consolidation, low legacy exposure and healthy margins prompt us to be positive on the stock,” said Devang Bhatt of ICICI Securities in his report.
 
Mphasis is providers of IT services specialising in cloud and digital solutions. It has deep domain expertise in the banking, financial Services and insurance sectors (BFSI) and serves 35 of the top 50 US BFSI firms. Mphasis delivered its highest‐ever quarterly total contract value (TCV) wins in each of the last three quarters: Direct TCV wins increased 64 per cent YoY for the nine-month period ended December 31, 2020, said the PE player in its statement. Amit Dixit, co-head of Asia acquisitions and head of India for Blackstone Private Equity, said: “Information technology and software services have been strong sectors for value creation for the last two decades. This investment enables us to continue creating value for the long term with continuity in the management team and the board, and provide additional resources to further accelerate the company’s growth momentum.”