The Hong Kong-based buyout fund has initiated the process by mandating investment banks Barclays and JP Morgan to find buyers at a valuation of Rs 18,500 crore – Rs 22,200 crore ($2.5-$3 billion), multiple people aware of the development said.
The sale process is expected to be formally launched in the coming weeks though feelers have already gone out to several PE funds like Apax Partners, Bain Capital, Carlyle and KKR, as well as global technology players like Fujitsu, as cloud migration and digital services become key themes for corporations amid the Covid-19 pandemic.
Baring acquired a controlling stake in Hexaware in 2013 from promoter Atul Nishar and PE firm General Atlantic, followed by acquisition of shares from public shareholders, which took its holding to 71.25%.
Baring spent around Rs 2,850 crore ($465 million) for the acquisition.
Last September, it began taking the company private through a reverse book building delisting process, spending around Rs 5,400 crore to buy the entire 37.9% stake from public shareholders. Most saw that as the first step for an eventual sale.
Currently, HT Global IT Solutions, the holding company of Baring, owns around 91.6% in Hexaware, while minority shareholders who did not tender their shares and employees own the rest.
In the past, the PE firm had tried to sell the company but remained unsuccessful as share prices would jump on expectations of a deal every time a conversation firmed up, deterring potential buyers.
The PE firm had first explored a sale in 2016, reaching out to French IT firm Capgemini and a clutch of PE firms, ET reported previously.
In 2018, a year after shareholders were informed that the fund was exploring a sale to investors outside India, 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 shares.
Talks with Japanese firm Fujitsu for a buyout had also slowed recently, triggering a full-blown auction process by the fund.
Hexaware, Fujitsu and Bain Capital did not respond to emails till press time on Thursday. Baring PE, Apax, KKR and Carlyle declined to comment.
Strong financials
Industry watchers say the company is expected to clock earnings before interest, taxes, depreciation and amortisation (Ebitda) of $160 million – $ 190 million for the calendar year 2021.
“The company has been growing at a 13-14% CAGR in the last 5 years. It should fetch 15-18X forward Ebitda multiples, or $2.5-$2.8 billion,” said an investment banker specialising in technology deals who is aware of the ongoing discussions.
“There are very few private companies of this size and as broad-based as this. Hexaware has managed to migrate from legacy offerings to cloud and automation that have higher margins and growth and have a good bunch of global clients,” the banker added.
Some, however, believe the high price tag might put off buyers.
Recently, Blackstone abandoned the sale process for Mphasis and flipped it to another of its funds along with GIC of Singapore, ADIA and University of California Investments. At the same time, Hitachi bought GlobalLogic for $9.6 billion earlier this month.
Under the leadership of chief executive R Srikrishna, a former
hand, Hexaware was among the earliest home-grown technology services firms to make a pronounced move to the cloud.
Srikrishna, according to sector analysts, brought in a more structured approach to its operations, narrowing down focus to just three-four key verticals. He also decided to focus on its top clients, growing the share of revenues from the top 20 clients.
Hexaware primarily focusses on cloud, automation and customer experience transformation for companies in banking, insurance, healthcare, travel and transformation. Even during the pandemic in calendar year 2020, which saw the travel vertical getting impacted significantly, the company clocked good growth.
In the September quarter of the same calendar year, the last when the company publicly declared quarterly results, Hexaware reported new deal wins worth $154 million, higher than in all of 2019. This growth was largely a result of clients investing in cloud and automation-led optimisation projects on account of the pandemic. It even hired 600 employees in the third quarter.
With marquee clients such as Bank of America, Citi, home mortgage players
Fannie
Mae and
Freddie Mac, banking and financial services is Hexaware’s biggest vertical – contributing about 38% to revenues, followed by healthcare and insurance (21%) and manufacturing and consumer (17%).
Travel and transportation, the other major vertical, was impacted last year following the pandemic. The Americas comprise over 70% of its total business, followed by Europe at about 20% and Asia at around 10%.
For the quarter ended September 30, 2020, Hexaware reported net profit of Rs 162.7 crore, down 11.4% over the corresponding period last year and up 6.7% sequentially.
Revenue came to Rs 1,585.9 crore, up 7.1% year on year and 1.1% sequentially.
In dollar terms, profit was down 15.9% at $21.9 million, while revenue rose 1.7% to $214.1 million.
