Action in the mid-tier IT services segment is hotting up with Hong Kong-based Baring Private Equity Asia looking to acquire up to 56 per cent stake in NIIT Technologies Ltd for ₹4,890 crore.
Baring already owns majority stake in Mumbai-based IT services firm Hexaware Technologies, which could now be merged with NIIT Tech, according to industry experts.
Definitive agreements
Baring has signed definitive agreements to purchase approximately 18.85 million NIIT Technologies shares, amounting to 30 per cent shareholding, from NIIT Ltd and other promoter entities at a price of ₹1,394 per share for ₹2,627 crore. The private equity firm has also made an open offer to the public shareholders of NIIT Technologies to purchase up to 26 per cent additional shareholding at a price of ₹1,394 per share. The company’s shares closed at ₹1,349.50 on the BSE on Friday. The two transactions together will get Baring 56 per cent stake in NIIT Tech for ₹4,890 crore. NIIT Technologies is an independently listed company after it was carved out from NIIT Ltd in 2004.
Rajendra Pawar, Chairman, NIIT Technologies, said: “The long-standing relationships with marquee customers, many spanning over two decades, are a consequence of a sharp focus on identified verticals including, travel, banking and insurance and distinctive capabilities developed. The involvement of Baring will provide further impetus to the management team led by CEO Sudhir Singh to take the company to the next level of growth.”
The deal comes at a time when mid-tier IT services firms, including L&T Infotech, Mindtree and NIIT Tech, are growing at a faster pace than the top tier companies. NIIT Tech had delivered strong Q3FY19 results, beating market estimates on revenues and EBITDA margin. The order-book, executable over the next 12 months, stood at $375 million, up 14 per cent year on year.
Market analysts said the measures undertaken by the new CEO have yielded positive results. NIIT Tech’s revenue growth would be at the upper end of the mid-cap IT peers’ and is growing at twice the pace of Tier-1 IT vendors. The company has been beefing up senior hiring over the last few months. Total headcount at the end of the third quarter stood at 10,144 employees. NIIT Tech derives 35 per cent of its total revenues from the EMEA region and has a sizeable presence in the UK. However, the company does not see any major impact from Brexit as it operates predominantly in the insurance and travel verticals in the UK.
Vijay Thadani, Vice-Chairman & Managing Director, NIIT Ltd, said: “This transaction will further support our growth from being No.1 IT training company since inception in India to a global leader in talent development.”
Synergies with Hexaware
Baring Private Equity Asia is one of the largest and most established private alternative investment firms in Asia, with total committed capital of over $17 billion. It had first entered the Indian IT services space in a significant way by acquiring a 42 per cent stake in Hexaware from founder Atul Nishar and private equity firm General Atlantic for around ₹1,600 crore. The PE firm had later acquired additional stake in the company.
“In all probability, NIIT Tech will be merged with Hexaware, and the combined entity will have a close to a billion dollars in revenue. There are customer synergies and large deals require you to show a strong balance sheet,” said Kris Lakshmikanth, CEO, Head Hunters India.