India's largest platform and marketplace for AI & Analytics leaders & professionals

Sign in

India's largest platform and marketplace for AI & Analytics leaders & professionals

3AI Digital Library

Carlyle is the frontrunner to acquire Mphasis from Blackstone

3AI February 24, 2021

Carlyle Group is negotiating with at least half a dozen banks and a pension fund to buy out Blackstone’s stake in Mphasis. Binding offers due today.

Mumbai: Private equity firm Carlyle Group has emerged as a probable frontrunner to acquire Mphasis Ltd. from Blackstone Group, in what could be the largest buyout in the Indian IT space, according to people familiar with the development.

Carlyle is negotiating with a clutch of overseas banks and a pension fund—Deutsche Bank, Barclays, Standard Chartered Bank, Nomura, and Canada Pension Plan Investment Board—to finance the acquisition. While a unit of the Canadian pension fund is likely to offer mezzanine debt, others are likely to come on board as senior lenders.
JP Morgan, which is advising the fund, might join the consortium.

Other Suitors

ET had on Jan. 4 reported that Brookfield, Bain & Co, Carlyle and Permira were queueing up for a likely $3 billion Mphasis buyout. They are still in the race, but a decision is yet to be taken, one person aware of the matter said.

It is possible that two of the contenders might team up to make a bid, and some of the limited partners of these funds—Abu Dhabi Investment Authority (ADIA) or GIC of Singapore—may step in as well, said sources close to Blackstone. Permira has opted out. Goldman Sachs PE, according to another source, has also shown last-minute interest to be part of a consortium and is said to have offered a minimum of $500 million funding commitment.

But at least seven people ET spoke with said that the spurt in Mphasis’ share price and the size of the transaction has muted the enthusiasm of the others.

“Blackstone does not want Carlyle to be the sole bidder and wants to keep the competition alive to maximise value. But Carlyle seems to have done most work for now,” said an executive familiar with the development.

The due date for submitting binding offers is Tuesday.

Blackstone and Carlyle declined to comment for this story. JPMorgan, Deutsche Bank, Standard Chartered Bank, CPPIB, Barclays declined to comment. Emails sent to Nomura and Goldman Sachs remained unanswered. Mphasis did not respond to ET’s questionnaire.

BIggest Payday

Blackstone’s 56.12% stake in Mphasis is valued at Rs 17,538 crore, based on the IT firm’s market cap of Rs 31,254.48 crore at close of trade on Monday. Mphasis shares have risen 89% in the last 12 months.

One of the persons mentioned earlier in this story said Blackstone had planned block trades to capitalise on the bull run, much like it did at Essel Propack, but the size of the Mphasis deal dissuaded the company from such a move.

A majority stake sale by Blackstone and a change of control at Mphasis will trigger an open offer for an additional 26% stake, according to India’s market regulations.

Carlyle, meanwhile, has been among the busiest private equity investors in India. It has so far deployed more than $3 billion—a fourth of it last year—for buying into or buying out companies across pharma, financial services, healthcare and technology sectors. It has roped in former Mindtree CEO Rostow Ravanan as an operating adviser to help in technology transactions.

Twin Business Streams

Mphasis has two streams of business:

  • The direct channel, which consists of digital, new generation and legacy technology business, accounts for 87% of its revenue.
  • The indirect channel, for which it relies on former parent Hewlett Packard (DXC/HPE), accounts for 13% of overall revenue.

Ever since the Blackstone takeover in 2016, Mphasis’ key capabilities in the BFSI space have been renewed, resulting in bigger and longer duration deals for the company in the segment. Banking and capital markets contribute to over half of the company’s total revenue.

Mphasis has also been chasing and winning more ‘digital’ deals that are centred around its cloud and AI capabilities in the recent quarters. This has helped it reduce its dependence on indirect business.

The company has also been trying to offset the slower pace of revenue growth from DXC by winning new, transformation deals with elements of cloud, AI and ML from the market, said analysts. CEO Nitin Rakesh is confident of the company’s ability to reduce dependence on DXC.

“We are at a point where our direct relationships are starting to be as large in terms of revenue contribution. I think 10-12% is a good range to think about for DXC in the medium to longer term perspective,” he told ET.

The company signed new deals worth $247 million in the October-December quarter of the ongoing fiscal. It also acquired UK-Datalytyx in November to supplement its cloud-based services portfolio.

“We expect continued traction in the direct business (excluding digital risk), helped by strong deal wins and a favourable demand environment,” said Mukul Garg of Motilal Oswal Financial Services. This should more than compensate for continued drag in its under pressure DXC business.”

Picture from freepik.com

    3AI Trending Articles

  • Commodity Price Forecasts using ML driven Insights

    Featured Article: Author: Tarana Chauhan, Procurement Analyst, AB InBev Dependency on Commodities and Associated Risks: Companies with Agricultural commodities as their core raw material face several risks in supply security. Agricultural commodities not only suffer from the risks associated with market dynamics like all other commodities but are also impacted by environmental factors making them […]

  • HCM Decision Making powered by Talent Sciences

    Talent Science is the business capability of using advanced data analysis techniques and predictive models to drive HCM decision making. It calls for a logical connection between decisions about people, HR program investments and strategic business outcomes. This can form a backbone of human resource function of all organizations independent of the sector in which it operates. […]

  • View: The way countries handle Foreign Policy will change due to Digital Transformation

    The way countries handle foreign policy will change irreversibly in the future due to digital transformation. . There is hardly any aspect of life that hasn’t been affected by the Covid-19 pandemic. New technologies, inventions and well-organised tools are being developed every day. Digital transformation has occurred all around us. It impacted every business, reducing […]

  • Unleashing the CX Potential: GenAI Revolution

    Featured Article Author: Sudha Bhat In today’s competitive landscape, the demand for outstanding customer experience (CX) has surged, particularly with the advent of Generative AI (GenAI). This new era transcends traditional personalized interactions, paving the way for hyper-customized, real-time experiences that are fundamentally driven by AI technology.  Recent studies suggest that 80% of businesses that […]