Mumbai: Blackstone India, the Indian arm of global private equity fund Blackstone Group L.P., on Monday said it will buy 60.5% stake in Bengaluru-based information technology services provider Mphasis Ltd.

Blackstone will buy the shares from Hewlett Packard Enterprise (HPE) at 430 per share. This will be followed by a mandatory open offer for 26% more shares of Mphasis. Depending on the open offer subscription, Blackstone will spend between 5,466 crore and 7,071 crore (approximately $825 million-$1.1 billion) for the acquisition.

On 8 March, Mint had reported Blackstone’s plans to acquire a controlling stake in Mphasis Ltd by backing the existing management headed by chief executive Ganesh Ayyar.

“Its deep relationship with marquee global customers has enabled Mphasis to deliver growth above the industry average in its Direct International segment. We see large potential going forward driven by Mphasis’ world-class delivery capabilities and its access to Blackstone’s portfolio of companies across the globe," said Amit Dixit, senior managing director and co-head of private equity in India at Blackstone.

HPE and Blackstone have agreed on the terms of a master services agreement (MSA) and the duration of the MSA is five years with three automatic renewals of two years each. Under this MSA, HPE has proposed to commit a minimum revenue amount escalating year-on-year and totaling $990 million over the next five years. Also, Mphasis will be included in HPE’s Preferred Provider Program opening up significant additional revenue opportunities, said the Blackstone statement.

Mphasis’ last 12 months revenue as of 31 December 2015 was 59,99.6 crore ($904 million) and profit after tax was 6,92.3 crore ($104 million). MPhasis has expertise in banking, financial services and insurance (BFSI) sector and has roughly 24,000 employees across 16 countries.

Hewlett Packard Enterprise inherited Mphasis when it bought IT consulting company Electronic Data Systems in 2008.

On 1 November, Hewlett-Packard split into two companies, HP Inc. and HPE. HP Inc. is the personal computing and printing company and HPE is the enterprise company housing the servers, storage, networking and IT services businesses.

For Mphasis, orders from parent Hewlett Packard have been steadily declining over the past few years. The contribution from Hewlett Packard decreased to 34% of the total revenue in the year ended 31 March 2015 from 71% in 2010.

PE deals in IT and software services in India rose 40% in 2015 to $2 billion, from $1.4 billion in 2014, according to data from VCCedge, the financial research platform of VCCircle. Business processing outsourcing (BPO) services have seen deals worth $410 million in 2015.

“Buyout funds are focusing on creating turnaround stories in IT/ITES /BPO/KPO companies which are at modest valuations compared to peers. Funds are acquiring cash flow generating companies with turnaround potential. They intend to grow these organically or inorganically to generate value for all stakeholders. An example of this is Baring Capital’s acquisition of Hexaware. These IT/ITES/BPO companies are expected to witness increase in business due to booming e-commerce and digitalization, especially in BFSI sector," said Samir Bahl, chief executive officer, Anand Rathi Investment Banking.

In September, Blackstone Group had repurchased the India-based BPO operations of the UK’s Serco Group Plc. for £250 million, four years after selling the unit.

Besides its investment in Serco, Blackstone acquired a minority stake in Thiruvananthapuram-based technology firm IBS Software from private equity firm General Atlantic and other shareholders for $170 million in December.

In May, Blackstone had sold its controlling stake in cash management company CMS Info Systems Ltd to Baring Private Equity Asia in a deal worth $440 million.

Blackstone, which established its office in India in August 2005, has since then committed $3.5 billion in the country.

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