Blackstone To Buy Mphasis From HP In Deal Worth As Much As $1.1 Billion

Marking an end to the long speculated buyout, Blackstone India, the India arm of Blackstone Group LP, today announced that they have entered into a definitive agreement with Hewlett Packard Enterprise (HPE) to buy a majority 60.5 per cent stake in Mphasis Ltd. This deal represents the largest acquisition by Blackstone in India.

Speaking to media persons in Bengaluru, Ganesh Ayyar, CEO & Executive Director of Mphasis, said “This has been a breakthrough deal and this transaction promises accelerated growth, stability and predictability.” He however clearly stated that he had not been involved in the decision making of the said transaction.

Analysts are also positive on this transaction. “This deal is going to give Mphasis an opportunity to come out of shadows that it had walked into. Ever since its acquisition by EDS and then with HP acquiring EDS, Mphasis went into oblivion. Although, it always had its own legal identity with its own business and go-to-market, however it never was able to establish itself as a visible and credible provider beyond the fact that it was an HP entity. The Blackstone buyout would allow it come out of its oblivious status and will give it an opportunity to come back into the mainstream IT services as a force to reckon with. Moreover, Blackstone portfolio companies could in itself be an opportunity to mine,” said Arup Roy, Research Director, Gartner.

Blackstone will pay a purchase price of Rs 430 per share to HPE which currently holds 60.5 per cent stake in Mphasis. As per the Takeover Code in India, this transaction will trigger a mandatory open offer for a purchase of additional 26 per cent 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 (approximately $825 million - $1.1 billion).

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’ business can be broadly classified into two parts – direct and HP channel. The direct business which constitutes about 50 per cent of the company’s total revenue has been growing at 14 per cent per annum while its revenue from the HP channel (which constitutes about a quarter of the revenue) has been declining at 19-21 per cent per annum. According to Ayyar, this acquisition gives Mphasis a minimum revenue guarantee. “If the declining HP business stabilizes or starts growing, it will do wonders for the company,” he said.

Mphasis revenue for the last twelve months ended December 31, 2015 was Rs 59,99.6 crore ($904 million) and net profit stood at Rs 6,92.3 crore ($104 million).

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 roadmap for company’s growth. With a long-term commitment of company’s largest customer, HPE, we are confident that Mphasis will scale new heights.”