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HP’s Mphasis Exit Valued at $1 Bn, Blackstone Outbids Tech Mahindra to Gain 60.5% Stake

Mar 29, 2016 | Technology | Future Market Insights

In an interview with ‘The Bloomberg TV India’ last month, Mphasis CEO Ganesh Ayyar nonchalantly talked about how he has had to respond to speculations on HP selling its 60.5% stake in Mphasis for years. Well, going by the recent turn of events, Mr. Ayyar may soon have the opportunity of ending these speculations once and for all – New York based Blackstone LP is all set to acquire HP’s stake in Mphasis in a deal pegged at over a billion dollars.

When HP acquired EDS – then parent company of Emphasis – for US$ 13.9 billion in 2008, the move was viewed as a bold risk to take on IBM’s big IT services business. However, things went awry, culminating into a US$ 8 billion write-down in 2012. Since then, speculations have been rife that HP will let go of Mphasis to focus on its core business.

HP once accounted for nearly 70% revenues of Mphasis, but the last five years have seen a massive decline, primarily on account of slowing orders by HP customers. HP’s revenue contribution to Mphasis has fallen to 27%, of which nearly 19% is from HP’s external clients.

Blackstone Betting Big on India’s Growth Story

According to media reports, Blackstone survived an aggressive bid from India-based Tech Mahindra, to emerge as the strongest contender. Speculations are also rife that Tech Mahindra’s offer faced opposition from the incumbent management.

Blackstone is betting big on the India growth story, having invested over a whopping US$ 5 billion in the country since 2005. The world’s largest PE fund is eyeing the country’s tech sector, having invested over US$ 500 million in tech sector in the last 6 months. Blackstone bought back BPO Intelenet for US$ 385 million, and in December 2015, it acquired a minority stake in tech company IBS software.

If things work out as planned, Mphasis will be Blackstone’s largest investment in India. Whether the move brings in large-scale restructuring or drastic changes in Mphasis’ revenue model remains to be seen. FMI’s analysts are of the view that Blackstone’s deal is at a big discount to the market value, which can create a downward spiral in share prices in the near future. Although Mphasis’ shares have soared and are currently trading at 504 points, up from 451 points on March 11, it will be interesting to see what happens once the deal is officially announced.

While Mphasis has been unofficially up ‘for sale’ for the last couple of years or so, we can finally expect an official word in a day or two. The deal can be seen as a win-win situation for both HP and Blackstone, however, how it impacts Mphasis remains to be seen.