January 25, 2021

Blackstone set to acquire Mphasis in $1 billion deal

The world’s largest private equity investor Blackstone Group is close to acquiring IT firm Mphasis in an over $1-billion deal, outbidding two other strong contenders — Apollo Global Management and Tech Mahindra. It will buy out Hewlett-Packard’s (HP’s) 60.5% stake in the Bengaluru-based IT firm.
This would mark Blackstone’s biggest deal in India, bigger than last year’s $383 million acquisition of most of the offshore BPO operations of London-headquartered Serco (formerly Intelenet).
The announcement is expected next week, said sources familiar with the development. Blackstone will pay a slight premium to the current market price. Mphasis said it doesn’t comment on speculation and Blackstone said it has no comments to offer.
The incumbent management may back the Blackstone bid. TOI had previously reported that the management was keen on a financial investor than a strategic investor.The management felt a strategic suitor would not be in the interest of a long-serving incumbent management.
Blackstone has muscled its way to the lead, thwarting competing bids from Tech Mahindra and private equity firm Apollo. Peter Bendor Samuel, CEO of US-based Everest Research, said Blackstone is well-positioned to take Mphasis out of HP , fund its growth by investing in the new offerings and go-to-market capability that Mphasis will need if it is to grow and prosper. “As a PE firm, Blackstone will be able to retain the existing Mphasis management team which is highly capable but has been somewhat hamstrung by the complications of HP ownership. These factors make Mphasis more attractive to a PE firm than a strategic one such as Tech Mahindra at this time,” he said.
Tech Mahindra had made an aggressive bid. Mphasis would have helped it boost its BFSI revenues from the current 9.8%, which is lower than that for its larger peers. It would also have given it a larger footprint in the US. Mphasis, which gets 60% of its revenues from BFSI, counts JP Morgan as one of its top customers.Mphasis’ stock rose nearly 2% to Rs 465 on the BSE on Wednesday. Citigroup is managing the sale process for HP, Tech Mahindra is being advised by JP Morgan, and Apollo Global by Avendus Capital.
Analysts had raised concerns about Mphasis’ performance, which has been rather mixed for some time now. The company has reduced its dependence on HP’s business.HP used to contribute 65% to Mphasis’ revenue some five years ago, but that was down to 34% in 2014-15. Its non-HP business has been growing at 20% year-on-year. Tom Reuner, managing director of HfS Research, said Mphasis has had the “for sale” sign up for two years.