Four PE funds in fray to pick up stake in QuEST Global Services2 min read . Updated: 19 Oct 2015, 12:38 AM IST
Baring Asia, Advent, Bain Capital, General Atlantic in talks to acquire 20% stake from Warburg Pincus
Mumbai: Four private equity (PE) funds are in a race to buy a minority stake in Bengaluru-based engineering services provider QuEST Global Services Pte Ltd, two people familiar with the development said.
Buyout funds Baring Asia Private Equity, Bain Capital Llc, Advent International Corp. and General Atlantic Llc are in discussions to acquire a 20% stake from Warburg Pincus Llc, said one of the two people cited above, on condition of anonymity.
Other PE funds, including Apax Partners Llp, have backed out after the first round of bidding, said the second person.
The deal will value QuEST Global, a provider of engineering solutions in the areas of aerospace, automotive, power generation, oil and gas, and industrial product domains, at as much as $1.2 billion, the people said.
Credit Suisse AG is advising Warburg Pincus on the sale process.
Founded by Aravind Melligeri and Ajit Prabhu in 1997, QuEST’s clients include Pratt & Whitney, Rolls-Royce, The Boeing Co., Airbus SA, General Electric Co., United Technologies Corp., General Motors Co. and Ford Motor Co. It employs more than 7,300 professionals across the world with delivery centres in the US, the UK, Singapore, Germany, Italy, Spain, France, Japan and India. Half of its engineers are in Bengaluru, Belgaum and Thiruvananthapuram offices in India.
Spokespersons for Baring Asia PE, General Atlantic, Bain Capital and Advent International declined to comment.
An email sent to Niten Malhan, managing director of Warburg Pincus India Pvt. Ltd, did not elicit any response.
After Warburg’s $75-million investment in QuEST in 2010, the company has grown multifold through several acquisitions, including Kochi-based NeST Software.
QuEST raised $6 million from Carlyle Group’s growth fund in 2003. In 2007, the stake was bought back by the promoters.
Several businesses engaged in technology or business outsourcing are in the market for a stake sale.
In September, PE investor Blackstone Group LP repurchased the India-based business processing outsourcing (BPO) operations of UK’s Serco Group Plc for £250 million (about ₹ 2,558 crore), four years after selling the unit.
In 2011, Blackstone sold the BPO business—then known as Intelenet—to Serco for £385 million.
“India provides a significant skill base and cost arbitrage for outsourcing businesses in IT and engineering to flourish. Further the rupee-dollar movement has made India even more competitive for the multinational companies to outsource to India," said Mayank Rastogi, partner (transactions and private equity) at consulting firm EY.
These businesses are highly cash generative with low working capital or capex intensity and hence attractive for PE investments. Private equity funds have got high returns in this sector, such as iGate, Genpact, Intelenet etc, he added.
In April, PE firm Apax Partners gained four times its original investment by selling its minority stake in iGate to Capgemini SA as part of a $4 billion acquisition. Apax, which held 28.9% in iGate, generated $1.2 billion in the transaction.
Technology and business services expenditures in India is projected to reach as much as $130 billion by 2025, according to the new projection released last month by software lobby group Nasscom, based on research by McKinsey and Co.
In April, Warburg Pincus had exited its five-year-old investment in Metropolis Healthcare Ltd, which operates a chain of pathology laboratories in India and abroad. Warburg had sold its entire 27% stake in the company to the promoters.