* To buy about 41.8 pct from Hexaware founders, General
* Follow it up with mandatory tender offer for up to 26
* Open offer price set at 135 rupees/share vs 120.75 Friday
(Recasts with company confirmation, analyst comment, deal
By Stephen Aldred and Indulal PM
Aug 23 Baring Private Equity Asia has agreed to
buy a controlling stake in Indian outsourcing service provider
Hexaware Technologies Ltd for about $420 million,
underscoring the potential for growth in the country's showcase
information technology sector.
Baring will buy 41.8 percent in Hexaware from the founders
and private equity investor General Atlantic for about $260
million. It will then have to make a mandatory tender offer for
up to 26 percent for roughly $160 million.
The deal, which is subject to regulatory approvals, will be
the fourth largest acquisition of an Indian company this year
and fifth largest in the technology sector, according to Thomson
In India, buyout opportunities for private equity firms are
rare and the deal highlights the surging interest in IT firms on
expectations of lucrative outsourcing contracts from global
corporations trying to cut costs and boost efficiency.
"The Indian IT services companies will benefit from a rise
in technology spending as the U.S. economy revives," said Dipen
Shah, head of private client group research at brokerage Kotak
"The sector will do well in the medium to long term. Baring
taking a majority stake in Hexaware is an indication of that."
Baring will buy 27.7 percent from Hexaware founders and 14.1
percent from General Atlantic at a price of 126 rupees ($1.97)
or 135 rupees a share, with the higher price payable should the
private equity firm manage to acquire 50 percent or more.
The price for the tender offer to acquire the additional 26
percent stake in Hexaware has been set at 135 rupees a share, a
premium of nearly 14 percent over its Thursday market price.
Hexaware develops software and provides business process
outsourcing services to overseas clients. Its rivals in India's
$108 billion outsourcing industry include Infosys Ltd
and Tata Consultancy Services Ltd.
The Hexaware stake sale is the second major exit by founders
of a mid-sized Indian information technology outsourcing company
in the past two-and-a-half years, amid cut-throat competition
from bigger global and local rivals.
In January 2011, U.S.-listed iGate Corp, backed by
private equity firm Apax Partners, acquired the founders' and
General Atlantic's stake in mid-sized outsourcer Patni Computer
Systems for $1.2 billion.
The deal values Hexaware at about 8.5 times EBITDA (earnings
before interest, tax, depreciation and amortisation), nearly in
line with the Patni deal.
Hexaware shares rose as much as 6.5 percent on Friday before
ending up 1.8 percent at 120.75 rupees, giving it a market value
of about $570 million. The main Mumbai market index rose
Baring is one of the largest independent private equity
firms in Asia, with over $5 billion in capital under management.
In May, Baring agreed to invest $260 million in French cement
maker Lafarge SA's India operations.
The private equity firm invests in Asia from its fifth fund,
which at $2.46 billion when it closed in 2011, was the largest
raised for Asia investments since the global financial crisis.
Indian M&A deal value in the first half of this year was
$18.4 billion, up from $17.9 billion in the same period last
year, with inbound deals accounting for a bigger share, Thomson
Reuters data showed.
Morgan Stanley and Credit Suisse advised Hexaware founders
and General Atlantic on the deal.
($1 = 64.0100 Indian rupees)
(Writing by Sumeet Chatterjee; editing by Stephen Coates and