* Deal would be largest for Indian IT since iGate-Patni in
* HP's 60.5 pct stake in MphasiS valued at about $1 billion
* Preliminary bids likely to be invited by end-June-sources
By Indulal PM and Sumeet Chatterjee
MUMBAI, May 31 Private equity giants Carlyle
Group LP and Blackstone Group LP as well as Indian
outsourcers L&T Infotech and Tech Mahindra Ltd, are
lining up bids for Hewlett-Packard Co's $1 billion stake
in India's MphasiS Ltd, several sources involved in
the process said.
Buyout firms Advent International and Bain Capital LLC are
also in talks to bid for HP's 60.5 percent stake in MphasiS, an
IT services exporter, said the sources, who declined to be named
as details of a potential deal are not yet public.
Tech Mahindra and L&T Infotech, mid-range players in India's
$108 billion IT outsourcing industry, may team up with private
equity firms to make bids for the MphasiS stake, two of the
sources told Reuters.
MphasiS, which generates roughly half its revenue by
providing services to HP's clients, has a market value of $1.8
billion. Reports of a potential stake sale to private equity
firms emerged about a month ago.
Preliminary bids for the MphasiS stake sale are likely to be
invited by the end of June, sources said, and a deal could be
finalised during the July-September quarter.
MphasiS was formed in 2000 and six years later Electronics
Data Systems Corp acquired a majority holding in the company. In
2008, EDS was acquired by HP, which resulted in the transfer of
the shareholding to the world's largest PC maker.
A deal would be one of the largest in India's showpiece IT
outsourcing services sector. U.S.-listed iGate Corp
bought a controlling stake in India's Patni Computer Systems for
$1.2 billion in 2011.
The iGate deal valued Patni at about eight times EBITDA
(earnings before interest, tax, depreciation and amortisation),
and sources said MphasiS is likely to command a lower valuation
since the bulk of its business depends on subcontracting by HP.
Officials with HP, MphasiS, Carlyle, Blackstone, Advent,
Bain, Tech Mahindra and conglomerate Larsen & Toubro,
which owns L&T Infotech, all declined to comment.
MphasiS competes with Indian outsourcing services providers,
including market leaders Tata Consultancy Services Ltd,
Infosys Ltd and Wipro Ltd.
India's top outsourcing companies, including Infosys and
TCS, are not seen as possible bidders for the MphasiS stake as
their acquisition strategies are driven by the need to add new
service lines or enter new countries, some of the sources said.
"This is mainly going to be a competition among the PE firms
with some mid-sized companies expected to jump into the fray in
the final stages," said one of the sources.
"The buyer will have to focus a lot on sales and marketing
in the first few years to grow the non-HP business," which is
why a private equity firm may team up with an IT services
company, he said.
HP is expected to continue to send IT services contracts to
MphasiS over the short to medium term after the sale of its
stake and its contribution to the Indian unit's revenue will
gradually decline after that, some of the sources said.
Besides MphasiS, HP has its own IT delivery centres in India
where it employs thousands of engineers who provide services and
develop software applications for its global clients.
Some of the sources said HP's move to sell its stake in
MphasiS is part of CEO Meg Whitman's turnaround plan, which
includes expanding into markets and areas with longer-term
potential. HP could also use some of the sale proceeds to reduce
its $2.9 billion debt, they said.
Private equity investments are showing signs of a pickup in
India. KKR & Co LP in April agreed to buy a controlling
stake in India's Alliance Tire Group from Warburg Pincus for
roughly $500 million, sources have said.