MW Transaction Analysis
Baring Private Equity Partners Asia to Purchase Controlling Stake in Hexaware Technologies
- Total Transaction Size: $266.6 M
- Implied Enterprise Value: $549.0 M
- Implied Enterprise Value / LTM Rev: 1.7x
- Implied Enterprise Value / LTM EBITDA: 8.3x
- Baring Private Equity Asia announced on August 23 that it signed a definitive agreement to acquire a 41.9% stake in Hexaware Technologies Limited (BSE:532129), with an additional open offer to acquire an additional 26% stake in Hexaware.
- The total potential investment of more than $465 million will be the largest investment made by Baring Asia in India, and is one of the largest-ever foreign investments in the IT services sector in India.
Deal Highlights Surge in Indian Outsourcing
- Buyout opportunities for private equity firms are very rare, and even more so in India. As a result, this deal highlights the surging interest in IT firms fueled by expectations of lucrative outsourcing contracts from global corporations trying to cut costs and focus more on their core businesses.
- Furthermore, the transaction is evidence that Indian companies continue to hold a strong global competitive advantage in IT services, drawing continued interest by global investors.
Hexaware Can Scale
- The Hexaware platform could be scaled rapidly with further capital. We believe Baring will seek to rapidly grow the company through acquisitions, allowing it to escape the problems facing other middle-market companies.
- The transaction also clearly points to the prediction that Indian IT Services companies will benefit from a rise in technology spending as the U.S. economy improves.
More Market Specialization in India/Asia Moving Forward
- While scale is important to all global IT outsourcing companies, Asian companies have new pressure to differentiate themselves from their competitors as overall market growth has slowed. The result is that middle-market IT services companies in India are being squeezed. Conversely, large companies can leverage their scale for advantages. Small companies can distinguish themselves by specializing to fill niches. Medium-sized companies face an increasingly inhospitable environment--without a unique market advantage they will be squeezed out or swallowed up through M&A.
- This pressure on medium-sized companies is felt throughout Asia--during the last three quarters, at least five Chinese IT services companies, including iSoftStone, Pactera, AsiaInfo-Linkage, Camelot and Yucheng Technology have all announced receiving proposals from private equity firms, including Blackstone, to go private.
martinwolf was not the advisor in this transaction.
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With offices in San Francisco and Bangalore, India, martinwolf is a leading middle market M&A Advisory focused on companies with services-based business models. Since 1997, our team has completed more than 115 transactions in six countries. We are a five-year member of the Merrill Lynch PS Referral Network, and were selected as ICICI Bank's (India's leading private bank) exclusive strategic partner for acquiring U.S. IT companies.
The firm is also a presenting sponsor of the Global IT M&A Forum.
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