PE firms, French firm vie for $2.5 billion Hexaware deal

Mumbai | Pune: Private equity teams Bain Capital, Carlyle and KKR are within the fray to accumulate Hexaware Technologies for $2.5 billion from Baring Private Equity Asia in doubtlessly the most important IT companies buyout within the nation. Monetary traders are on the prowl for scaled know-how sector belongings to reap the benefits of rising company IT spending on cloud companies throughout the US and Europe.

They’re competing with French outsourcing firm Teleperformance SE, proprietor of Intelenet, which has additionally been chosen to provoke due diligence on the goal earlier than closing binding bids due mid-August, mentioned a number of individuals accustomed to the matter. The shortlist has been whittled down from an preliminary subject of over half-a-dozen suitors, together with Brookfield, Introduction Worldwide, Companions Group, Apax Companions, Rackspace Expertise and Fujitsu.

ET was first to report on April 30 that Hong Kong-based Baring Asia had initiated the sale course of, six months after taking the mid-tier IT companies agency non-public. It mandated funding banks Barclays and JP Morgan to seek out consumers. HT World IT Options, holding firm of Baring, owns 92% of the corporate. Minority shareholders who didn’t tender their shares and workers personal the remainder.

Baring Asia, KKR & Co., Bain, Carlyle and Teleperformance declined to remark.

Hexaware didn’t reply to queries.

After placing large-scale know-how initiatives on maintain in 2020, companies worldwide switched to distant collaboration and different enterprise continuity instruments. Consulting agency Gartner expects IT spends to succeed in $4.1 trillion in 2021 alone, up 8.4% from 2020, resulting in a resurgence in company IT progress.

The rebound to pre-pandemic spending ranges received’t be unfold evenly throughout industries, say specialists. Banking, securities and insurance coverage firms, which fared higher throughout the disaster, are prone to increase IT spending sooner than retailers and journey companies. Hexaware is trying to reap the benefits of this.

Constructing on momentum

Within the firm’s fiscal 12 months ended December 2020, banking and monetary companies had been the most important verticals, contributing about 38% of income, with shoppers together with premier US banks akin to Citi and Financial institution of America and mortgage companies like Freddie Mac and Fanny Mae.

The opposite vital contributors to the highest line had been healthcare and insurance coverage (21%) and manufacturing and shopper (17%). Journey and transportation, the opposite main vertical, was badly hit by the pandemic.

Beneath the management of chief govt R Srikrishna, previously of HCL Applied sciences, Hexaware was among the many earliest homegrown know-how companies companies to make a pronounced transfer to the cloud.

Srikrishna, in line with sector analysts, introduced in a extra structured method to operations, narrowing the main focus to a few to 4 key verticals and the highest 20 shoppers. In 2020, Hexaware’s income grew 12.2% to Rs 6,262 crore from the 12 months earlier and at a 15.4% CAGR in 5 years.

The corporate has not disclosed the present 12 months’s financials. However analysts count on it would clock earnings earlier than curiosity, taxes, depreciation and amortisation (Ebitda) of $160-190 million (Rs 1,193-1,417 crore) for the 12 months to December.

Srikrishna instructed ET in April that demand had accelerated throughout sectors and geographies previously few months, apart from journey and transportation, which was anticipated to choose up within the second half of the 12 months.

In June 2019, the corporate acquired buyer expertise consulting agency Mobiquity for $182 million to strengthen its choices in buyer expertise transformation. Tech deal specialists say Hexaware might fetch 15-18x ahead Ebitda multiples, translating to a $2.5 billion valuation, in a aggressive bidding scenario.

Deal frenzy

PE investments in know-how soared within the closing months of 2020, with traders spending $65.17 billion final 12 months on 2,138 offers involving solely US-based IT firms, outpacing investments in another sector, in line with S&P World Market Intelligence.

The Indian mid-tier tech area too has seen vital deal actions — Mphasis, Hinduja World, GlobalLogic, Infogain, 3i Infotech — on the again of perceived worth creation alternatives in modernising getting old IT techniques worldwide. Within the final three months, the IT index of the Nationwide Inventory Alternate has outperformed the broader market by 3 proportion factors.

Baring took a controlling chunk in Hexaware in 2013 from promoter Atul Nishar and PE agency Basic Atlantic, spending round Rs 2,850 crore ($465 million) on the acquisition. Final September, it started taking the corporate non-public, spending one other Rs 5,400 crore to purchase the 37.9% stake held by public shareholders. Most noticed that as step one in an eventual sale.

Previously, the PE agency had tried to promote the corporate however remained unsuccessful because of worth fluctuations. It had first explored a sale in 2016, reaching out to French IT agency Capgemini and different PE companies.

In 2018, Baring offered an 8% stake via block offers for Rs 1,120 crore. Nevertheless, this was at a big 10% low cost to the prevailing market worth, triggering a steep single-day fall of 16.5% within the share worth. | PE companies, French agency vie for $2.5 billion Hexaware deal


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