Blackstone ropes in ADIA, GIC, UC Investments for $2.8-bn Mphasis deal

 Blackstone ropes in ADIA, GIC, UC Investments for $2.8-bn Mphasis deal

Blackstone Group Inc has teamed up with Abu Dhabi Investment Authority, UC Investments and Singapore’s GIC for a $2.8-billion (Rs 21,000 crore) deal to retain control of Mphasis Ltd after dropping a plan to sell the company.

New York-listed Blackstone and the co-investors will own as much as 75% of the Indian software services company when the transaction closes, the world’s biggest private equity firm said Monday.

“Mphasis is backed by strong secular tailwinds as global enterprises increasingly migrate to the cloud,” said Amit Dixit, Blackstone’s India PE chief.

“This investment enables us to continue creating value for the long term with continuity in the management team and the board, and provide additional resources to further accelerate the company’s growth momentum,” he added.

The buyout firm had acquired a 60.5% stake in the company in 2016 from Hewlett Packard Enterprise for Rs 5,466 crore ($827 million) in what was its largest deal in India until then. It lowered its stake in 2017 and 2018 but increased its holdings last year to take advantage of a weak stock price. It now owns a 56.16% stake in Mphasis.

Blackstone had been exploring a sale of Mphasis for the past few months, according to Indian media reports. In February, The Economic Times reported that Carlyle had emerged as the sole bidder for the information technology company. Last month, Bloomberg reported that Blackstone had dropped the sale plan.

The latest transaction involves Blackstone rolling over its investment in Mphasis to its eighth global buyout fund and an Asia fund from its sixth global fund, and then making an open offer to buy a 26% stake from public shareholders.

Blackstone, like many other global PE firms, invests in India both from its global funds and Asia funds. The PE firm collected a record $26 billion for its eighth global buyout fund in 2019. It raised $2.4 billion for its first Asia fund three years and is currently in the market for the second regional vehicle that has already mopped up $3.1 billion.

Blackstone’s decision to roll over its investment in Mphasis to new funds isn’t unique. PE funds typically have a lifecycle of around 10-12 years. This means they need to exit the portfolio companies in that time frame and repay their limited partners, or their own investors.

However, at times, due to a lack of exit opportunities or expectation of better value in the future, PE firms may move a portfolio company from an old fund to a new fund. As LPs in the new fund could differ, such a change of control may trigger an open offer.

In the case of Mphasis, ADIA, GIC and UC Investments are coming in as new investors. ADIA and GIC are the sovereign wealth funds of Abu Dhabi and Singapore, respectively. UC Investments manages the retirement and endowment assets of the University of California.

Transaction details

According to stock-exchange filings, Blackstone’s new funds have signed a deal to acquire a 55.31% stake in Mphasis from the previous vehicles for as much as Rs 15,216.9 crore (about $2 billion).

This share transfer will be held at a price of Rs 1,400-1,452 apiece. The actual price will depend on the number of shares tendered in the open offer; higher the shares, lower the price and vice versa.

If the open offer is fully successful, the new funds would lower their purchase from the older vehicles so as to ensure their stake doesn’t exceed 75%—the threshold for a company to remain listed on stock exchanges. Blackstone plans to buy as many as 49.26 million shares in the open offer at Rs 1,677.16 apiece for Rs 8,262.22 crore ($1.1 billion).

Based on the open offer subscription, the blended purchase price will vary between Rs 1,452 and Rs 1,497 per share. As a result, the total deal value will vary between Rs 15,200 crore to Rs 21,000 crore ($2.0 billion to $2.8 billion).

Shares of Mphasis jumped 3.3% in early Monday trade on the BSE to Rs 1,753.50 apiece. The stock has almost tripled since a one-year low of Rs 661.35 in April last year.

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Sumit Upadhyaya

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