Blackstone to cement control of India's Mphasis

The private equity firm is mobilizing three funds, one of which will sell down shares to two others - effectively extending the holding period. The transaction will also include co-investment from Abu Dhabi Investment Authority and the University of California’s UC Investments.

The trades between funds have triggered a mandatory open offer from Blackstone for 26% of Mphasis from public shareholders at a price of INR1,677 per share. The stock jumped almost 6% following the announcement and was trading at about INR1,735 as of mid-afternoon April 26, giving the company a market capitalization of around INR328 billion ($4.4 billion).

Blackstone acquired a 60.5% stake in the company from Hewlett Packard for INR70 billion in 2016 via its sixth flagship fund, which closed at around $16.2 billion in 2012. The University of California is an LP in that fund, having provided $30 million. Blackstone sold  8% two years later for about INR14.8 billion and built its position back up to 56.2% through a INR51.7 billion investment last year.

Fund VI has now agreed to sell a 55.3% stake in Mphasis to two other Blackstone funds for up to INR152.2 billion, according to a filing. The buyers include Blackstone’s eighth global fund, which raised $22 billion in 2019, and its debut Asia vehicle, which closed at $2.3 billion in 2018. The University of California contributed $250 million to the latter fund.

Much of the strategy is to improve Blackstone’s ability to drive value through continuity in the management team and on the board. The firm is a client of Mphasis as well as an investor and positions its ownership as a strategic relationship.

“Mphasis is backed by strong secular tailwinds as global enterprises increasingly migrate to the cloud,” Amit Dixit, co-head of Asia acquisitions and head of India private equity for Blackstone, said in a statement.

“The company is exceptionally well-positioned given a terrific management team, strong order backlog, long-term strategic customer base, deep domain expertise in financial services, and a world-class suite of cloud and digital offerings.

Mphasis is considered a global leader in IT outsourcing for the banking, financial services, and insurance sectors. It offers an extensive suite of products leveraging digital technologies, including blockchain, to transform legacy business systems. There is a strong focus on migration to cloud-based operations, as well as services in software development and cybersecurity among other disciplines.

Business digitalization trends related to the pandemic are believed to have driven a recent growth spurt, with the number of total contract value (TCV) wins reaching new in-house highs in each of the past three quarters. Direct TCV wins increased 64% year-on-year for the nine-month period to year-end 2020.

Net revenue increased 14% year-on-year in 2020 to INR88.4 billion, while net profit improved by 10% to INR11.8 billion. The company attributed the performance to COVID-19 effectively deepening its target market and relevance as a service provider, noting that it was able to engage with new kinds of clients.

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