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Hexaware Tech shares opened at  ₹453 and touched a low of  ₹415.20, down as much as 16.57%, its biggest fall since 24 August 2015. Photo: Mint
Hexaware Tech shares opened at 453 and touched a low of 415.20, down as much as 16.57%, its biggest fall since 24 August 2015. Photo: Mint

In Baring PE's move to delist Hexaware, there is a history of failed exits

  • Taking Hexaware private could ease Baring's efforts to exit the company as it's easier to sell a promoter-owned, unlisted firm
  • The company has 12 'buy', 11 'hold' and 5 sell ratings from brokerages, according to data from Bloomberg.

MUMBAI: Baring Private Equity Asia, the private equity firm which owns software services Hexaware Technologies Ltd has been looking to exit the company for many years but each time the private equity firm tried, the soaring share price made the valuation of the company too expensive for any incoming buyers appetite.

In one more attempt, the company’s promoters on Friday announced plans to delist the company from stock exchanges, paving way for a long awaited exit. HT Global IT Solutions, holding company for Baring holds a 62.4% stake in Hexaware. On Friday, it offered Rs285 per equity share to purchase the remaining shares to take its shareholding to 90% and then go private. This announcement led to the share price rising 20% and it was locked in an upper circuit at Rs311.3 for the rest of the day.

“Baring’s perhaps has decided to delist as it is always easier to sell a completely promoter-owned, unlisted company. In that case, the incoming buyer will not have to go through the rigmarole of an open offer and buying out retail investors. Considering that the stock prices are low right now it makes sense," said Shriram Subramanian is managing director at InGovern Research Services, a corporate governance advisory firm.

Taking Hexaware private could ease Baring's efforts to exit the company, something it has been trying for the last few years but with no success yet.

Baring PE had 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 shareholding in the IT services firm to 71.25%. Baring spent around Rs2,850 crore for the acquisition.

The PE firm had first explored a sale of the IT services company in 2016. The PE firm had reached out to French IT company Capgemini and private equity firms Blackstone and Carlyle, according to a report by The Economic Times.

Later in 2017, the company had informed shareholders that Baring was exploring sale of the company's shares to investors outside of India.

Finally, in 2018, Baring managed to sell an 8% stake in the company through block deals on the market in 2018, which it sold for Rs1,120 crore. However, the stake was sold at a significant discount of 10% to the prevailing market price, which led to a steep single day fall of 16.5% in the company's stock price.

"They (Baring) have faced an issue with sharp swings in the stock price whenever they have tried to look at a stake sale in Hexaware. Talks of stake sale have in the past driven the stock price to levels where the buyers become uncomfortable in closing the deal," said a person aware of Baring's Hexaware plans.

At one point, Baring also contemplated merging Hexaware with its latest IT services acquisition NIIT Technologies Ltd, Mint reported in January 2019.

Baring's plans to take the company private come at a time when the market is optimistic about the company's prospects, despite the covid-19 disruption. The company has 12 buy ratings, 11 hold ratings and only five sell ratings from brokerages, according to data from Bloomberg.

"We reiterate accumulate with new target price of Rs319 from Rs255 based on 13x (from 10x) CY21E EPS of 24.5 (from 25.5). Improved depth of customer relationships and better operational execution, leading to margin beat and robust $163 million net new win on LTM basis deserves higher multiple," said Elara Capital in a recent report.

“The pricing of the delisting would entirely depend on what the current investors and promoters believe is the intrinsic value of the company and promoter may consider buying out other investors even at a much higher price than the indicative offer price," said Subramanian.

"As required by regulations, all material information relevant to the shareholders will be detailed in the offer document relating to the delisting offer. Baring PE Asia continues to believe in Hexaware and will continue to support the company, clients and employees," a spokesperson for Baring said

According to a second person aware of the PE firm's plans, Baring is looking to make further investments into the company after taking it private to grow the business and prepare it for an eventual exit. He spoke on the condition of anonymity.

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