 "Baring to buy Hexaware Tech for $465 mn")
This is the largest investment by Baring Asia in India. The earlier one was when it had acquired a 14 per cent stake in the Indian subsidiary of French cement manufacturer Lafarge SA for $260 million (Rs 1,400 crore).
This is also one of the largest PE deals in the Indian IT services segment.
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Baring said it had signed an agreement to purchase 41.8 per cent of the shares (approximately 125 million) in Hexaware from promoter entities, led by Chairman Atul Nishar (27.7 per cent) and General Atlantic Global Investments (which holds 14.1 per cent), at Rs 126 or Rs 135 a share, aggregating to Rs 1,575-1,687 crore ($242-260 million).
| THE GAME PLAN | |
| 27.7% stake to be sold by Hexaware Chairman Atul Nishar 14.1% to be sold by General Atlantic Global Investments Rs 126 or Rs 135 a share to be paid; higher price payable on reaching 50% or above aggregate shareholding in Hexaware 26% more stake to be purchased via open offer for Rs 1,058 crore $465 million or more is total investment potential >Largest investment made by Baring Asia in India |
Baring will make a public announcement for an open offer to the public shareholders of Hexaware to purchase up to an additional 26 per cent stake at Rs 135 a share, aggregating Rs 1,058 crore ($160 million).
This is at a premium of 4.35 per cent at the lower end and 11.8 per cent at the upper end.
This deal values Hexaware between Rs 3,764 crore and Rs 4,033 crore.
Since January, when speculation about the Baring deal began, the Hexaware stock has risen 42 per cent, against the Sensex’s 4.7 per cent loss in the period. The BSE IT Index rose 32.7 per cent in the same span. Nishar had then denied he was exiting the company.
Hexaware, founded in 1990 by Nishar, is a $364-million company. For the quarter ended June 30, it reported revenue of Rs 536 crore, up 7.3 per cent on a year-on-year basis, and net profit of Rs 97.9 crore, up 10 per cent y-o-y. Hexaware has 8,700 employees, a little over 200 active customers, eight global development centres and presence in 35 countries.
Nishar said: “Hexaware has differentiated itself by the quality of its relationships with some of the largest global corporations, with niche strength in certain key service offerings, especially in business intelligence and analytics, enterprise applications, quality assurance and testing, as well as the strength of the management team. Hexaware will remain a public company, and the management team led by P R Chandrasekar will continue, ensuring continuity of relationships with all stakeholders, particularly our customers, employees and public shareholders.”
After the deal, Nishar will continue to be with the company as non-executive chairman and Chandrasekar will continue as chief executive officer.
Jean Salata, chief executive & founding partner at Baring Private Equity Asia, said: “Baring Asia is excited about the growth opportunities that Hexaware offers and we look forward to working with P R Chandrasekar (chief executive officer and vice-chairman, according to the website) and his management team to develop the group further. Hexaware has an experienced management team, excellent customer relationships, a consistent track record and the ability to provide diverse services on a global scale.”
Despite the challenges the Indian IT services sector has seen in the recent past due to the global economic slowdown, it has managed to attract attention from PE investors. A similar deal where promoters and PE exited was the sale of Patni Computer Systems to iGate and Apax Partners. The 2010 deal was worth $1.2 billion.
Like the promoters of Patni Computer Systems, Nishar had been delaying a deal for a long time due to a valuation mismatch. The company was in talks with Larsen & Toubro and NEC for a stake sale.
Baring Private Equity Asia has assets worth $5 billion under management. It has a little over 30 portfolio companies across Asia, with revenues of $20 billion in 2012. In 2011, Baring had raised $2.46 billion for its latest fund, Fund V.
Morgan Stanley was the primary financial advisor and Credit Suisse was co-advisor to the promoter entities and General Atlantic. AZB & Partners acted as legal counsel for the sellers. J Sagar Associates was the legal advisor for the promoter. Khaitan and Co and Allen & Overy LLP were the legal advisors to Baring Private Equity Asia.