Will Mphasis be another Blackstone successful exit story in 5 years time?

Private Equity major Blackstone Capital Partners along with Marble II Pte. Ltd and Marble I Pte. Ltd has signed an agreement with Hewlett Packard Enterprise (HPE) to buy 50 odd percent of its stake in Mphasis along with a minimum commitment of $990 million which translate into close to $198 annually for next 5 years as a part of their 11 year contract.

Mphasis has been struggling to grow with their over dependency on HP business, which was depleting over last 5 years. The biggest positive is that there will be an assurance of minimum $198 million business annually from HP going forward which is lesser than its Dec 2015 revenue base projection contribution of $222 million from HPE.

Blackstone proposed to buy between 50.3 to 60.2% stake in Mphasis for INR 430 per share and made a mandatory open offer to acquire 26% at INR 457/share from minority stakeholders. Currently, HPE hold 60.5%, FIIs hold another 21.1% and remaining 5.6% is held by mutual funds. This is completely a rejuvenating shot for Mphasis, compared to its last 5 years’ performance and a very slow overall growth.

Mphasis’ advantage:

  • Mphasis will be able to freeze the decline in HPE revenue at $198 million base revenue from HPE compared to last concluded $222 million revenue
  • Mphasis get a preferred provider status
  • Opportunity to tap into 80 odd Blackstone portfolio companies for IT Services with close to $1 billion IT spending
  • Management is going to be the same- hence no major transition related flux in operations and uncertainties
  • Management expertise from Blackstone will make Mphasis more profitable and growth focused, as they did with CMS or Intelenet performances over their invested period of time

First published in CioL on April 6, 2016