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IT rivals, PEs in fray as HP kicks off $1bn Mphasis exit

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Hewlett-Packard (HP) has embarked on a much-delayed sale of IT services firm Mphasis with Citigroup managing the auction process, multiple sources directly familiar with the matter said.
Hewlett-Packard Enterprises holds 60.5% stake worth around $1 billion in Mphasis and accounts for 34% of the Bengaluru-headquartered company’s revenue. Two years ago, it was on the verge of launching a sale process but it was stalled due to internal reasons. Since then, media reports have frequently speculated about various suitors eyeing Mphasis, which has been briskly scaling up non-HP revenue.
Tech Mahindra, Japan’s NEC, L&T Infotech and buyout private equity funds like Carlyle and Advent have been linked to possible interest in Mphasis in the past, and could figure in the latest process as well. The company’s CEO Ganesh Ayyar and team could align with one of the interested private equity investors after their management buyout efforts didn’t work out earlier.
Mphasis’ stock price, which has climbed up in recent quarters, closed at Rs 467 on Friday, pegging its market value at about Rs 10,000 crore. The company also has cash and cash equivalents of $400 million, taking its enterprise valuation to over Rs 12,000 crore.
When contacted, an Mphasis spokesperson declined to comment on speculation. Hewlett-Packard Enterprises could not be reached for immediate comments.
Mphasis founder Jerry Rao and his ex-colleagues, along with private equity funds, had planned a buyback bid in the past, but it wasn’t clear whether he would be in the fray this time. Former Citibanker Rao founded Mphasis 17 years ago, which became part of HP after the latter’s $14-billion buyout of EDS in 2008.
The expensive stock and falling HP revenue (which stood at 70% in 2010) could make it difficult for private equity bidders, sources said. There are also concerns about the margins of non-HP business, which the company has been ramping up fast. But the positives include size of the business (with over $1 billion revenue, a threshold in IT services) which can be revamped under a new ownership.
The company is increasingly focusing on banking and capital markets and insurance that contributes 41% and 14%, respectively, reflecting the impact of ramp-down in HP business. Mphasis has also outlined its ambition to transform into a digital IT company for which it effected some mid-sized acquisitions.

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