Blackstone to Buy Mphasis with Help from ADIA and University of California Endowment

Posted on 04/26/2021

Private equity funds managed by Blackstone have entered into definitive agreements to acquire a majority stake in Mphasis Limited (NSE: MPHASIS) for up to US$ 2.8 billion. A wholly owned subsidiary of the Abu Dhabi Investment Authority (ADIA), UC Investments, and other long-term investors will co-invest along with Blackstone. This transaction will trigger a mandatory open offer for the purchase of up to 26% additional shares of the company from the public shareholders and the acquiring entity has released a public announcement to the stock exchanges. Based on the open offer subscription, the blended purchase price will vary between INR 1,452 to INR 1,497 per share (12-16% premium to 12-month average price and 3% to 6% discount to 6-month average price) and the purchase consideration will vary between INR 152 billion to INR 210 billion (or, approximately US$ 2.0 billion to US$ 2.8 billion).

A different fund managed by Blackstone had acquired a 60.5% controlling stake in Mphasis from Hewlett Packard Enterprise (NYSE: HPE) in September 2016. HPE had owned 60.5% of Mphasis and sold the stake for INR 5,466 crore (US$ 825 million).

Mphasis is a provider of Information Technology services specializing in cloud and digital solutions. Mphasis serves 35 of the top 50 U.S. banking, financial services and insurance (BFSI) firms.

Amit Dixit, Co-Head of Asia Acquisitions and Head of India for Blackstone Private Equity, said in a press release: “Information technology and software services have been strong sectors for value creation for the last two decades. Mphasis is backed by strong secular tailwinds as global enterprises increasingly migrate to the cloud. The company is exceptionally well-positioned given a terrific management team, strong order backlog, long-term strategic customer base, deep domain expertise in financial services, and a world-class suite of cloud and digital offerings. 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. We are grateful to Mphasis’ customers, investors, employees and board for their continued support.”

Satish Swamy, Senior Managing Director Asia and Global Rates, UC Investments (The Regents of the University of California), said in a press release: “Blackstone has an exceptional team and franchise in India. An ownership mindset with a business building approach has led to many successful investments including its flagship investment in Mphasis. We have known the company and the management team for a few years and are delighted to now become investors. At UC Investments, we invest as partners with a long-term mindset in companies with secular tailwinds — Mphasis perfectly fits that bill.”

The sale is expected to complete in the coming months, subject to customary closing conditions and regulatory approvals.

Mphasis was formed in June 2000 after the merger of the U.S.-based IT consulting company Mphasis Corporation and Indian IT services company BFL Software Limited. In June 2006 Electronic Data Systems (EDS) purchased a controlling stake in Mphasis at 42% for US$ 380 million and operated the company as an independent EDS unit. On May 13, 2008, Hewlett-Packard confirmed that it had reached a deal with Electronic Data Systems to acquire the company for US$ 13.9 billion. Mphasis operated as an independent HP subsidiary with its own board and continued to be listed on Indian markets as “Mphasis Limited”. HP owned close to 62% in Mphasis and Mphasis got around 50% of its revenues from HP, it’s largest client. According to December 2020 financial filings, Mphasis revenue from the top 5 clients make up 40% of the firm’s revenue.

Keywords: Office of the Chief Investment Officer of the Regents University of California, UC California Investment Office.

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