Blackstone pursues $359m take-private of India's R Systems
The Blackstone Group has agreed to acquire a majority stake in India-based IT services provider R Systems International at a valuation of INR 29.04bn (USD 359m) and moved to delist the company.
Satinder Singh Rekhi, who founded R Systems in 1993, and his fellow promoters have agreed to sell 61.1m shares – or a 51.67% stake – to Blackstone for INR 245 apiece. The private equity firm has also made an open offer for the remaining 57.2m shares – 48.33% – at INR 246 per share. There is a minimum acceptance threshold of 38.33%, although Blackstone could waive this and settle for 26%, according to a filing.
R Systems stock jumped 15.7% on November 17, closing at a seven-month high of INR 271.10, in response to the announcement of the offer. It ended the following day at INR 262, giving the company a market capitalisation of approximately INR 31bn.
R Systems specialises in product engineering for digital IT services, with competencies covering artificial intelligence, data analytics, the internet of things, robotic process automation, and cloud. It employs over 4,400 people across delivery centres in North America, Europe, and Asia, including India, working with 250 customers in technology, media and telecom, and financial services.
Revenue for the 12 months ended December 2021 was USD 156.5m, up from USD 119.2m the previous year. Over the same period, EBITDA rose from USD 15.8m to USD 21.9m and net profit increased from USD 11.1m to USD 19.2m. North America is the biggest customer, accounting for more than two-thirds of revenue, while technology is the biggest sector with a 45% revenue share.
Blackstone noted that revenue for the 12 months ended September 2022 was USD 189m, up 36% year-on-year.
“As a leader in outsourced software product development, R Systems is well-positioned to benefit from digitalisation tailwinds, shorter product launch cycles and increased openness to outsource product development,” said Mukesh Mehta, a senior managing director at the private equity firm, in a statement.
“This investment follows Blackstone’s longstanding conviction in IT services and builds on the firm’s robust track record in the sector globally.”
Blackstone’s existing exposure to IT services in India includes Mphasis, which it has controlled since 2016 through its sixth flagship fund. Last year, Fund VI sold a 55.3% stake in Mphasis to Fund VIII and Blackstone’s debut Asia fund for up to INR 152.2bn. The transactions triggered a mandatory open offer for 26% of Mphasis but there was insufficient interest from public shareholders.
Investment vehicles participating in the R Systems deal include Blackstone’s second Asia fund, which closed on USD 6.4bn in December 2021.
BDA Partners served as financial advisor to the sellers of R Systems, while AZB & Partners acted as legal advisor. Blackstone was advised by KPMG, Cyril Amarchand Mangaldas, and Simpson Thacher.
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