Baring Asia puts Hexaware on sale for $2.5-$3 billion

The Hong Kong-based buyout fund has initiated the method by mandating funding banks Barclays and JP Morgan to search out consumers at a valuation of Rs 18,500 crore – Rs 22,200 crore ($2.5-$3 billion), a number of individuals conscious of the event mentioned.

The sale course of is predicted to be formally launched within the coming weeks although feelers have already gone out to a number of PE funds like Apax Companions, Bain Capital, Carlyle and KKR, in addition to world know-how gamers like Fujitsu, as cloud migration and digital companies turn out to be key themes for companies amid the Covid-19 pandemic.

Baring acquired a controlling stake in Hexaware in 2013 from promoter Atul Nishar and PE agency General Atlantic, adopted by acquisition of shares from public shareholders, which took its holding to 71.25%.

Baring spent round Rs 2,850 crore ($465 million) for the acquisition.

Final September, it started taking the corporate non-public by means of a reverse e book constructing delisting course of, spending round Rs 5,400 crore to purchase your complete 37.9% stake from public shareholders. Most noticed that as step one for an eventual sale.

Presently, HT International IT Options, the holding firm of Baring, owns round 91.6% in Hexaware, whereas minority shareholders who didn’t tender their shares and workers personal the remaining.

Previously, the PE agency had tried to promote the corporate however remained unsuccessful as share costs would leap on expectations of a deal each time a dialog firmed up, deterring potential consumers.

The PE agency had first explored a sale in 2016, reaching out to French IT agency Capgemini and a clutch of PE companies, ET reported beforehand.

In 2018, a yr after shareholders had been knowledgeable that the fund was exploring a sale to buyers outdoors India, Baring bought an 8% stake by means of block offers for Rs 1,120 crore. Nonetheless, this was at a major 10% low cost to the prevailing market worth, triggering a steep single-day fall of 16.5% in shares.

Talks with Japanese agency Fujitsu for a buyout had additionally slowed not too long ago, triggering a full-blown public sale course of by the fund.

Hexaware, Fujitsu and Bain Capital didn’t reply to emails until press time on Thursday. Baring PE, Apax, KKR and Carlyle declined to remark.

Sturdy financials

Business watchers say the corporate is predicted to clock earnings earlier than curiosity, taxes, depreciation and amortisation (Ebitda) of $160 million – $ 190 million for the calendar yr 2021.

“The corporate has been rising at a 13-14% CAGR within the final 5 years. It ought to fetch 15-18X ahead Ebitda multiples, or $2.5-$2.8 billion,” mentioned an funding banker specialising in know-how offers who’s conscious of the continued discussions.

“There are only a few non-public firms of this dimension and as broad-based as this. Hexaware has managed emigrate from legacy choices to cloud and automation which have increased margins and progress and have a superb bunch of worldwide shoppers,” the banker added.

Some, nonetheless, consider the excessive price ticket may postpone consumers.

Not too long ago, Blackstone deserted the sale course of for Mphasis and flipped it to a different of its funds together with GIC of Singapore, ADIA and College of California Investments. On the identical time, Hitachi purchased GlobalLogic for $9.6 billion earlier this month.

Underneath the management of chief govt R Srikrishna, a former

hand, Hexaware was among the many earliest home-grown know-how companies companies to make a pronounced transfer to the cloud.

Srikrishna, in accordance with sector analysts, introduced in a extra structured method to its operations, narrowing down focus to simply three-four key verticals. He additionally determined to deal with its prime shoppers, rising the share of revenues from the highest 20 shoppers.

Hexaware primarily focusses on cloud, automation and buyer expertise transformation for firms in banking, insurance coverage, healthcare, journey and transformation. Even in the course of the pandemic in calendar yr 2020, which noticed the journey vertical getting impacted considerably, the corporate clocked good progress.

Within the September quarter of the identical calendar yr, the final when the corporate publicly declared quarterly outcomes, Hexaware reported new deal wins value $154 million, increased than in all of 2019. This progress was largely a results of shoppers investing in cloud and automation-led optimisation initiatives on account of the pandemic. It even employed 600 workers within the third quarter.

With marquee shoppers similar to Financial institution of America, Citi, dwelling mortgage gamers
Fannie
Mae and
Freddie Mac, banking and monetary companies is Hexaware’s greatest vertical – contributing about 38% to revenues, adopted by healthcare and insurance coverage (21%) and manufacturing and shopper (17%).

Journey and transportation, the opposite main vertical, was impacted final yr following the pandemic. The Americas comprise over 70% of its complete enterprise, adopted by Europe at about 20% and Asia at round 10%.

For the quarter ended September 30, 2020, Hexaware reported internet revenue of Rs 162.7 crore, down 11.4% over the corresponding interval final yr and up 6.7% sequentially.

Income got here to Rs 1,585.9 crore, up 7.1% yr on yr and 1.1% sequentially.

In greenback phrases, revenue was down 15.9% at $21.9 million, whereas income rose 1.7% to $214.1 million.