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


Mumbai | Pune: Private equity groups Bain Capital, Carlyle and KKR are in the fray to acquire Hexaware Technologies for $2.5 billion from Baring Private Equity Asia in potentially the largest IT services buyout in the country. Financial investors are on the prowl for scaled technology sector assets to take advantage of rising corporate IT spending on cloud services across the US and Europe.

They are competing with French outsourcing company Teleperformance SE, owner of Intelenet, which has also been selected to initiate due diligence on the target before final binding bids due mid-August, said several people familiar with the matter. The shortlist has been whittled down from an initial field of over half-a-dozen suitors, including Brookfield, Advent International, Partners Group, Apax Partners, Rackspace Technology and Fujitsu.

ET was first to report on April 30 that Hong Kong-based Baring Asia had initiated the sale process, six months after taking the mid-tier IT services firm private. It mandated investment banks Barclays and JP Morgan to find buyers. HT Global IT Solutions, holding company of Baring, owns 92% of the company. Minority shareholders who did not tender their shares and employees own the rest.


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

Hexaware didn’t respond to queries.

After putting large-scale technology projects on hold in 2020, businesses worldwide switched to remote collaboration and other business continuity tools. Consulting firm Gartner expects IT spends to reach $4.1 trillion in 2021 alone, up 8.4% from 2020, leading to a resurgence in corporate IT growth.


The rebound to pre-pandemic spending levels won’t be spread evenly across industries, say experts. Banking, securities and insurance companies, which fared better during the crisis, are likely to boost IT spending faster than retailers and travel firms. Hexaware is looking to take advantage of this.

Building on momentum

In the company’s fiscal year ended December 2020, banking and financial services were the biggest verticals, contributing about 38% of revenue, with clients including premier US banks such as Citi and Bank of America and mortgage firms like Freddie Mac and Fanny Mae.

The other significant contributors to the top line were healthcare and insurance (21%) and manufacturing and consumer (17%). Travel and transportation, the other major vertical, was badly hit by the pandemic.


Under the leadership of chief executive R Srikrishna, formerly of HCL Technologies, Hexaware was among the earliest homegrown technology services firms to make a pronounced move to the cloud.

Srikrishna, according to sector analysts, brought in a more structured approach to operations, narrowing the focus to three to four key verticals and the top 20 clients. In 2020, Hexaware’s revenue grew 12.2% to Rs 6,262 crore from the year earlier and at a 15.4% CAGR in five years.

The company has not disclosed the current year’s financials. But analysts expect it will clock earnings before interest, taxes, depreciation and amortisation (Ebitda) of $160-190 million (Rs 1,193-1,417 crore) for the year to December.


Srikrishna told ET in April that demand had accelerated across sectors and geographies in the past few months, with the exception of travel and transportation, which was expected to pick up in the second half of the year.

In June 2019, the company acquired customer experience consulting firm Mobiquity for $182 million to strengthen its offerings in customer experience transformation. Tech deal specialists say Hexaware may fetch 15-18x forward Ebitda multiples, translating to a $2.5 billion valuation, in a competitive bidding situation.

Deal frenzy

PE investments in technology soared in the final months of 2020, with investors spending $65.17 billion last year on 2,138 deals involving only US-based IT companies, outpacing investments in any other sector, according to S&P Global Market Intelligence.


The Indian mid-tier tech space too has seen significant deal activities — Mphasis, Hinduja Global, GlobalLogic, Infogain, 3i Infotech — on the back of perceived value creation opportunities in modernising aging IT systems worldwide. In the last three months, the IT index of the National Stock Exchange has outperformed the broader market by 3 percentage points.

Baring took a controlling chunk in Hexaware in 2013 from promoter Atul Nishar and PE firm General Atlantic, spending around Rs 2,850 crore ($465 million) on the acquisition. Last September, it began taking the company private, spending another Rs 5,400 crore to buy the 37.9% stake held by public shareholders. Most saw that as the first step in an eventual sale.

In the past, the PE firm had tried to sell the company but remained unsuccessful due to price fluctuations. It had first explored a sale in 2016, reaching out to French IT firm Capgemini and other PE firms.


In 2018, Baring sold an 8% stake through block deals for Rs 1,120 crore. However, this was at a significant 10% discount to the prevailing market price, triggering a steep single-day fall of 16.5% in the share price.

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