With $1b Mpha­sis Buy, Black­stone Lays Stress on IT

In­dian IT wit­nesses one of the largest M&A deals with Black­stone’s bold bet while Startup Inc re­alises the need for col­lab­o­ra­tions

The Economic Times - - Front Page -

Mum­bai | Ben­galuru: Black­stone has of­fered to buy

from HPE at

Open of­fer will be at

for ad­di­tional 26% stake

up to for 75%

HP to con­trib­ute min­i­mum rev­enue of for to HPE. This will also trig­ger a manda­tory open of­fer for the pur­chase of ad­di­tional 26% shares from the pub­lic at .₹ 457.54 apiece. Based on the re­sponse to the of­fer, the pur­chase price con­sid­er­a­tion will vary be­tween .₹ 5,466 crore ($825 mil­lion) and .₹ 7,071 crore ($1bil­lion) for a max­i­mum 75% stake in the com­pany.

The trans­ac­tion is ex­pected to close in the sec­ond half of fis­cal 2017, sub­ject to var­i­ous con­di­tions.

Shares of Mpha­sis, which have gained more than 11% from the be­gin­ning of March till end of last week Kochi:in an­tic­i­pa­tionThedis­pute­o­faoverdeal,the­fell­candi-2.9% da­teonMon­daylistintheto Con­gress­clos­es­light­ly­hasag­gra-be­low vat­edtheopen­with­of­fer­thep­riceThrikkakkaraatRs454.90.MLA Benny“The changeBe­hanan­i­nan­nounc­ing­pro­moter­tothatan heesistab­lished­with­draw­ing­pri­vate­frome­quityther­a­ce­player­fortick-isa et­spos­i­tive.forthe as­sem­blyHow­ever,polls.the open of­fer priceBen­nyis said­dis­ap­point­ing,”heiswith­draw­ing­wrote Ru-becmi­tausDu­gareKPCCand SaumyapresideShri­vasta-ntVM Sud­heer­anva,an­a­lyst­s­is­fro­ma­gain­stReli­gare­his­can­dida-In­sti­tu­ture.tion­alSud­heer­anRe­search.has sug­gested other namesOver fortheThrikkakkara.pasttwom­onths, ET has beenIt­wa­sex­ten­sivelyadis­pute be­tween­cov­er­ingKPCCthe pres­i­den­tMpha­sissaleVM Sud­heer­an­pro­ces­san­dand­wasChiefthe Min­is­ter­first­tore­portOom­menaboutChandyBlack­stone’sover­the can­di­datesin­ter­es­tinit­sliste­di­tion­inThrikkakkara­dat­edFe­brua-and 4ryother4.It con­stituen­cies­fol­lowed­itup thatwith­ledan­oth­er­tothe de­layre­port inon theMarchan­nounce­ment16,say­ingBlack-of Congress’stone­had emergedlist.Thethep­ar­tys­trongestHigh Com­mand­con­tender.is ex­pected to an­nounce the list on Mon­day or Tues­day. It is said the High Com­mand has yielded toAs with­Chandy­sev­er­althatof hisitsmid-cab­i­net­tier­peers,col­leagues,Mpha­sisKhasBabu,al­waysA­door­beenPrakash,aripeKta-C Joseph,keover­can­di­date,and­thet­wowhichMLAs­got compo-Benny an­dund­edDo­mini­cas­par­en­tPre­sen­ta­tionHPde­fo­cussed­shoul­don notit­sop­er­a­tion.bere­moved.HP had tried to exit its

BANK­ING ON BFSI

in­de­pen­dent In­dian arm two years ago but the process was stalled largely on ac­count of lack of clar­ity on the US tech­nol­ogy giant’s com­mit­ment to the busi­ness go­ing for­ward. With HPE try­ing to re­vamp its IT ser­vices group, the cur­rent sale process was revived late last year and an of­fi­cial sale man­date given to Cit­i­group.

Over the past few years, Mpha­sis has been fo­cussing on in­creas­ing its di­rect or­ganic busi­ness as HPE scaled down deal­ings with its In­dian arm con­tribut­ing to just about a fourth of its to­tal rev­enues.

With deep ver­ti­cal ex­per­tise in the bank­ing, fi­nan­cial ser­vices and in­surance (BFSI) sec­tor — which alone con­trib­utes 55% of rev­enues — Mpha­sis serves mar­quee cus­tomers in­clud­ing 6 top global banks,11out of 15 top mort­gage lenders and 3 top global in­surance com­pa­nies. The com­pany has 24,000 em­ploy­ees across 16 coun­tries. As of De­cem­ber 31, 2015, Mpha­sis’ rev­enues stood at Rs 5,996 crore ($904 mil­lion) and net profit at Rs 693 crore ($104 mil­lion). The other emerg­ing ar­eas in­clude com­mu­ni­ca­tions and en­ter­tain­ment, dig­i­tal so­lu­tions, global reg­u­la­tory & com­pli­ance and ap­pli­ca­tion mana- ge­ment ser­vices. so, Mpha­sis will be in­cluded in

“There are very few com­pa­nies in HPE’s ‘Pre­ferred Provider ProIn­dia which are close to that crit­i­gram’, open­ing up sig­nif­i­cant ad­di­cal $1-bil­lion mark in rev­enues. tional rev­enue op­por­tu­ni­ties. HPE This com­pany is just un­der that is still one of Mpha­sis’ big­gest so­mark. With the right own­er­ship urces of rev­enue. and right strat­egy, it can move up “Par­tic­i­pa­tion from HP through from the sub-bil­lion club to the this sig­nif­i­cant con­tract demon­st­multi-bil­lionNew Delhi: club,”Near­lyAmit8lakhDixit,calls­se­torates its con­fi­dence in Black­stone niorci­t­i­zens­man­agin­gin10di­rec­tor­daysflat,of­fewBlack-quickas an owner,” Dixit told ET. “I am stoneques­tion­sPri­vate­toEquityan­sweri­nandIn­di­aakey­told­in­put­con­fi­dent that go­ing for­ward the ET soughti­nanex­clu­sive­forany­im­prove­mentsin­ter­viewafter--this­rev­enue con­tri­bu­tion will only go an­nouncingishowthe ModitheGovern­ment­trans­ac­tion.hasre-up from the cur­rent 27%.” “Th­ey­cently,have­and­deep­si­lently,mar­quee­donea ground-BFSI “While our fi­nan­cial re­la­tion­ship cus­tomers.checkof Sev­er­altheim­ple­men­ta­tionofthe­serela-ofit­sis chang­ing, the busi­ness and com­tion­shipskeyschemes.have­been there for over mer­cial re­la­tion­ship with Mpha­sis five years.This­mas­siveTop10ofex­er­cisethemhave­donebeenus­in­gre­mains an im­por­tant part of our there­n­ear­ly­for­eight800­cal­lyears.agentsWe­o­farethe­con-BSNLser­vice de­liv­ery strat­egy,” said Mivinced­wasabout­toiden­ti­fythedepththedis­trict­soft­herela-whichke Ne­fkens, EVP of HPE En­ter­pri­tion­ship.”have­fared the best in the coun­try inse Ser­vices. “We re­main com­mit

In­ter­est­ingly,im­ple­ment­ingHPE­fourand­ma­jorBlack­sto-schemes -ted to our strate­gic partnership.” ne havePrad­han­now agreedMantri­onJan­theDhantermsYo­j­naof Fol­low­ing the ac­qui­si­tion, Mphaa Mas­ter(PMJDY),Ser­vicesSwach­hBharatA­gree­ment(Gramin),sis will po­ten­tially get ac­cess to (MSA)Swach­h­whichVid­hyalay­atheUS­com­pa­nyandSoil Health­pro-Black­stone’s en­tire PE port­fo­lio of pos­esCard.toBased­sign­with­sig­nif­i­cant­lyMpha­sis,on­this­postkey­over 80 com­pa­nies across the world ap­provalfeed­back­byMpha­sis’fromthe­board­c­i­t­i­zens,ofdi-PM— that post ag­gre­gate rev­enues of rec­torsNaren­draand­share­hold­ers.Modi­will­beaward­ingThedu-the­close to $90 bil­lion — for fu­ture out­ra­tionbestofdis­trict­s­theMSAon­isCivil­fiveyearsSer­viceswith­Daysourc­ing and tech­nol­ogy con­t­threeon au­to­mat­icApril21with­re­newal­sprizes worthoftwo ₹ 10racts. In the re­cent past, when most yearslakheach.eachUn­der--the­first­this­timeMSA,theHPE­for­ma­tother sec­tors have slashed IT spen­hasof­pro­posedthePMAward­sto­com­mitwill­bea to­mini-award­ding, BFSI clients have floated lar­mumdis­trict­srev­enue­whichamoun­tex­celledesca­latinginthege trans­for­ma­tional deals. year‘Im­ple­men­ta­tionoveryearand­to­tallingofPri­or­ity$990 “This deal is go­ing to give Mphamil­lionPro­grammes’.over­thenext five years. Al- sis an op­por­tu­nity to come out of

THERE’S MONEY TOO

shad­ows that it had walked into. Ever since its ac­qui­si­tion by EDS and then with HP ac­quir­ing EDS, Mpha­sis went into obliv­ion. It never was able to es­tab­lish it­self as a vis­i­bleSe­nio­rand­gov­ern­ment­cred­i­bleproviderof­fi­cials told­be­yondETthatthe­fac­tit­wasthat­in­fac­tit­wastheanPM’sHPideaenti-in ty.ear­lyMore­over,Fe­bru­aryBlack­stonethat­feed­back­port­fo­liofrom com­pa­ni­es­thescheme­could­ben­e­fi­cia­riesinthem­selvesshoul­dal­sobe an­beop­por­tu­ni­tysought­to­judgetomine,”whichdis­trict­saidAruphad Roy,be­stre­searchim­ple­mented­di­rec­tortheat Gart­ner.pri­or­ity Black­stoneschemes.Depart­mentswill­con­tin­ueo­ver­see­ing­to­back thethe­cur­rent­fourschemes­man­age­men­thadsub­mit­te­dled­by­ofChi­ef­fi­cialEx­ec­u­tive­dataw­ith aGaneshini­tial­short-Ay­yar.list of the ex­cep­tional dis­tricts. Cab­i­net Sec­re­tary PK Sinha then over­saw This­the will‘calls­be­toBlack­stone’sc­i­t­i­zens’ex­er­cise,thir­diniti-in­vest­men­tate­din­dou­ble-inthetimeIn­di­an­with­inITser­vices3weeks sec­to­roftheinPM’sthe­sug­ges­tion.past­sev­enAn­months8-10point­tak­ingques­tion­naire­sit­sto­tal­com­mit­ment­fore­a­chof thein four­the sec­torschemesto$1.4was­bil­lion.pre­paredIthad­tore­cently­beputto re-peo­pleac­quiredinthe­busi­nessshort­list­ed­pro­cess­dis­tricts.out­sourcingEThas firm­learn­tIn­te­lenet­that­n­ear­ly­for800$385call mil­lion­a­gentsand­ofthe­madeBSNLa$170-weremil­lion­ro­pe­din-in vest­ment­to­callupinoverIBS7.6Soft­ware.lakh­peo­pleSinceover 2005,10 daysithas iin­vest­ed­nthel aoverst­week$5.1bil-of li­onFe­bru­ary­inIn­dia acrossandear­ly­it­spri­vateMarchequi-with tyques­tion­san­drealestate­which­prac­tice.were to be an“sweredThere­a­son­i­naYesweor No,have­and­madea­que­rya stron­gon­sug­gest­ed­com­mit­mentim­prove­ments.totheIn­dian IT“sec­torThis­mustis­be­cause­bethe it­biggesthas­de­liv­ere­dex­er­cise verycar­ried­stron­goutre­turns­byany cen­tral­toBlack­sto­ne­orstate and­gov­ern­men­totherPEin­vestor­se­verin­such­inIn­dia,”ashort said­timeDixit.span“This­to­get­sec­torci­t­i­zen­is­feed­back.al­sopoi-

BLACK­STONE’S OUT­SOURC­ING BET

sed for good growth,” he added. In­dia’s IT and soft­ware ser­vices ex­port rev­enue is likely to grow 1012% in 2016-17 to $121 bil­lion, ac­cord­ing to trade body Nass­com. Black­stoneThe im­prove­mentshashiredDavid­sug­gest­edJohn­son,by whothe head­ed­ben­e­fi­cia­riesM&A inat it­selfDel­lan­dis­aIBM,very toim­por­tantlea­d­it­stech­nol­o­gy­in­put­for­bet­tering­in­vest­ments­the and­schemesstrate­gies­fur­ther,”world­wide.ase­nior Cab­i­net Sec­re­tar­iat of­fi­cial told ET, speak­ing on the con­di­tion of anonymity. Fol­low­ingThecit­i­zen­the feed­back­ex­it­fromwilla­tan­gen­tial­bea“ef­busi­ness­fec­tivein­put”likeMpha­sis,in­s­e­lect­ingHPEthe canaward-fo­cuswin­ningoncore­dis­trict­sop­er­a­tions,whichafter­haveChief­gone Ex­ec­u­tivethrougha mul­ti­pleOf­fi­cer fil­ter­ingMegWhit­man­pro­cess splitofe­val­u­a­tion/the­com­put­er­ex­pert­mak­er­com­mit­tees.lastNovem­ber.FortheMpha­si­sawards,got­states/clubbedUTs­in­to­havea sep­a­rate­been­di­vid­e­dunit­that­in­to­tar­getscat­e­gori­escor­pora-fora tion­slevel-with­play­ingservers,field --stor­a­geonecat­e­go­ryandser-is vices­theeigh­tand­north-washiv­edeast­er­nof­fand­fromthree­theone­hill fo­cussingstate­sof onJ&print­ersK,Hi­macha­land per­son­alPradesh com­put­ers.andUt­tarak­hand,“Mpha­sis­sec­ond­was­cat­e­go­ryn­ev­er­ful-is lythein­te­grat­ed7UTsand­in­tothirdHPE.cat­e­go­ryGivenis­rest­theirof own­the states.chal­lenges,Adis­tric­tits in­man­age­mentea­chofthe can­three­now­cat­e­gories­fo­cusatwillthe be­task­sawarde­dat­hand,un­but­der­thethe­cash­four­willschemeshelpthe­mex­cept­to­forgo throughSwach­htheirBhara­town(Gramin)trans­for­ma­tion.andSoil AsHealth­weareCard­mov­ingSchemein­tointheaUTs­news­inceera wherethescheme­labour­doe­sar­bi­trage­toap­ply­be­comes­there. lessThereim­por­tant,willbe10award­sHPE­can­i­nal­luse­ofRs­the10 cash­lakhtoeach.sup­port new strate­gic im­per­a­tives,”The­main­said­judg­ingTomRe­uner,cri­te­ria mana-is­ef­fig­ing­cient­di­rec­torand­cor­rup­tion-atout­sourcingfreeim­ple­men-ad­vi­so­ry­ta­tio­nan­dresearchofthep­ri­or­i­ty­fir­mHfSscheme.Re­search.

PM will be award­ing the best dis­tricts on April 21 with prizes worth 10 lakh each

In­du­lal PM, Anir­ban Sen

& Arijit Bar­man

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