Why partnering with a PE player is better for Mphasis

Mphasis is trying to diversify its non-HP business to reduce dependence on its parent; What should matter to it is what can a PE player brings to table

Tech Mahindra has backed out from the race for acquiring Bengaluru-based IT services firm Mphasis, an HP company. Many feel that going along with a private equity player may make better sense for the IT services firm.

Mphasis, that has been trying hard to diversify its non-HP business so that its dependence on parent company comes down, may just find that partnering with a private equity player like Blackstone or Apollo Global Management may be a big positive.

If Blackstone manages to acquire Mphasis, this will be its first investment in the IT services segment. It has invested in Intelenet Global Services, a business process management in 2011. It had investments in CMS Info Systems. Blackstone sold its stake to Baring Private Equity Asia.
 

For Apollo Global Management this would be their first investment in the technology space in India. Unlike peers like Blackstone and KKR, Apollo has not made too many bets in the Indian market.

What, however, should matter to Mphasis is what can a PE player brings to table. Attempts made to get in touch with Ganesh Ayyar, CEO, Mphasis failed, but a look at what Blackstone did with Intelenet Global Services when it first came on board in 2007, should give some idea.

When Blackstone acquired majority stake in Intelenet in 2007, revenue of the company was around $100 million. By the time the PE player sold its stake to UK-based Serco, Intelenet’s revenue had touched $250 million. What is more crucial is that Blackstone that invested about $180 million to get 90 per cent stake in the company made almost 3x when it sold the company to Serco for $634 million.

This is not all. Blackstone also gave Intelenet access to several of its portfolio companies. Today almost 15 per cent of Intelenet’s revenue comes from Blackstone’s portfolio firms. These companies gave Intelenet entry into sectors like travel, transport, hospitality and healthcare.

“Blackstone did help Intelenet in growing its healthcare practice. The PE player had good portfolio of companies from the healthcare segment, they gave Intelenet an entry point into these companies,” said a senior executive from an advisory firm.