‘HP’s Long-term Commitment will be Big Game Changer’
The Blackstone Group believes that its global portfolio and value-addition can transform Mphasis into a multi-billion IT services giant. In an interview after announcing the proposed billion-dollar buyout of the Hewlett Packard Enterprise arm, Amit Dixit, co-head of Blackstone’s PE business in India, tells Indulal PM and Arijit that a big game changer will be the long-term commitment that HP has offered to Mphasis. Edited excerpts:
What attracted you to Mphasis? We have a positive inclination towards the IT sector. Within the sector, Mphasis is a specialist player in banking and financial services with marquee customers. Several of these relationships have been there for nearly a decade. Top 10 of them have been there for eight years. We did the diligence and we are convinced about the depth of the relationship, specifically the top 15 ones. Mphasis has struggled to meet expectations over the years because of declining HP business. If you look at business in totality, the business has been declining in profits because its largest customers, which at one point in time used to be as much as $700 million in revenues, have come down to $200 million. This definitely has had an impact on growth. However, if you look at sum of parts, the specialised BFSI business ($450 million) or business from direct third-party international clients, it has been the crown jewel and consistently growing compared to its peers in the last three years.
What is the commitment from HP? There are three key points to HP commitment. It provide stability, predictability and growth for HP revenues, which was the single biggest issue for the company. Contractually, we have fixed that issue. It is now an 11-year commitment. A minimum revenue of $990 million over the first five years has been guaranteed on an escalating basis. Mphasis has been also included in HP’s preferred partnership programme.
What would be the composition of the new board? These are post-closure topics and we have at least four months to think about that. Currently, there are nine board seats with five HP directors and Blackstone will have the same post deal closure. We haven’t discussed about our nominees yet.
What will Blackstone bring to the table? The global exposure to our portfolio companies will be one of them. Participation from HP through this significant contract, and this demonstrate HP’s confidence in Blackstone as owner. And, the third is our ownership methodology, which has multiple facets to it. This includes highest quality of corporate governance while accounting and transparency would be the best in class. Transparency and availability of data is unheard in India. This allows good and prompt decision making.
How long will the integration take? It will take at least 90-120 days to close the acquisition. After that we will sit together with the management and prepare a blueprint for the immediate three to six months. There is a long and staggered time between signing and closing of the transaction. We have at least four months to think about that.
How does it help Blackstone in a long run? Mphasis is a specialised BFSI player. It’s a provider of digital services. So, there are enough growth opportunities.