Blackstone buys Mphasis from HP
Private equity major Blackstone Group have signed a definitive agreement with Hewlett Packard Enterprise (HPE) to buy a majority stake in Mphasis marking its largest acquisition in India so far. Blackstone with over $330 billion in assets under management, pipped Tech Mahindra and another private equity major Apollo Global Management who were also in the final fray in an aggressive counter bid.
HPE owns 60.5% of Mphasis. Blackstone will pay a purchase price of Rs 430 per share to HPE. This transaction will trigger a mandatory open offer for a purchase of additional 26% shares of the company. Based on the open offer subscription, the purchase price consideration will vary between Rs 5,466 crore and Rs 7,071 crore (or, approximately $825 million — $1.1 billion). The transaction is expected to close in the second half of fiscal 2016, subject to closing conditions.
The deal has come at a substantial discount to the prevailing market value after the stock has moved up 20% in the past month as the sale process gathered momentum. This will be Blackstone’s third deal in the Indian IT services sector in the last six months. It had acquired BPO firm Intelenet for $385 million and made $170-million investment in IBS Software.
HPE and Blackstone have agreed on the terms of a Master Services Agreement (MSA) which HPE proposes to sign with Mphasis, post approval by Mphasis’ Board of Directors and shareholders. The duration of the MSA is five years with three automatic renewals of two years each. Under this MSA, HPE has proposed to commit a minimum revenue amount escalating year over year and totaling $990 million over the next five years. Also, Mphasis will be included in HPE’s Preferred Provider Program opening up significant additional revenue opportunities.
Mphasis’ last twelve months revenue as of December 31, 2015 was Rs 59,996 mm ($904 mm) and net profit was Rs 6,923 mm $104 mm). It has deep vertical expertise in Banking, Financial Services and Insurance (BFSI) sector and strong portfolio focus on New Generation Services including Digital solutions. Mphasis serves marquee customers across the globe including 6 top global banks, 11 out of 15 top mortgage lenders, and 3 top global insurance companies. The company has roughly 24,000 employees across 16 countries.
Amit Dixit, senior managing director and co-head of private equity in India at Blackstone, said: “We are impressed by Mphasis’ strong domain expertise in Banking, Financial Services and Insurance vertical. Its deep relationship with marquee global customers has enabled it to deliver growth above the industry average in its Direct International segment. We see large potential going forward driven by Mphasis’ world-class delivery capabilities and its access to Blackstone’s portfolio of companies across the globe. The company has an experienced management team who has a clear road map for company’s growth. With a long-term commitment of company’s largest customer, HPE, we are confident that Mphasis will scale new heights.”