The all-cash deal reinforces Blackstone's bullish outlook on the outsourcing business, where western clients send IT jobs to countries such as India to cut costs. In December, Blackstone announced the purchase of a minority stake in India's IBS Software for $170 million.
Blackstone is betting that India's IT industry will continue to grow in double digits as companies move to high-margin digital services to offset a cut-back in routine IT spending by clients, a senior executive at the firm said.
"The reason we have made a strong commitment to the Indian IT sector is because this is a sector which has delivered very strong returns to Blackstone and other PE investors in India," said Amit Dixit, Blackstone's senior managing director in India.
"This sector is also poised for good growth ... and especially digital services, an area in which Mphasis is strong in," he said on a conference call after the deal was announced.
India's IT and software services export revenue is likely to grow by 10-12 per cent in the fiscal year beginning on April 1 to as much as $121 billion, according to trade body National Association of Software and Services Companies (Nasscom).
In what is one of the biggest M&A transactions in the country's outsourcing sector, Blackstone will pay Rs 430 ($6.49) per share for at least 84 per cent of HP Enterprise Co's 60.5 per cent stake in Mphasis.
It also made an open offer to buy a 26 per cent stake in Mphasis from public shareholders for Rs 457.54 a share to comply with Indian laws.
Depending on the response to the open offer, HPE could get as much as $825 million for its complete stake, while the final cost to Blackstone of the transaction could be as much as Rs 7,071 crore ($1.1 billion). The deal is expected to close in the coming months, Blackstone said.
Shares in Mphasis, which have gained more than 11 per cent from the beginning of March till end of last week in anticipation of a deal, fell 2.9 per cent on Monday to close slightly below the open offer price at Rs 454.90 on the Mumbai markets.
'Last big asset'
"This is a consolidating industry and Mphasis was the last big asset, you could see some more PE deals for smaller software companies in the sector going forward," said Ravi Menon, an IT sector analyst at Elara Capital.
Sources had told Reuters Blackstone was the frontrunner in an auction run by HPE for its Mphasis stake. HPE had been looking to exit from the Indian venture to shore up its capital, the sources had said.
Analysts have said that Mphasis' move away from HPE, which accounts for about a quarter of the Indian company's revenue, could hurt its sales.
But Blackstone has ensured that HPE maintains its commercial partnership with Mphasis. The Indian company has signed a five-year revenue guarantee of at least $990 million through sales to HPE, the companies said.
The US asset manager is not alone in initiating outsourcing sector deals in India.
In February, Singapore sovereign wealth fund GIC Pte and private equity investors Advent International and Bain Capital jointly bought a minority stake in outsourcing firm QuEST Global Services for $350 million.
($1 = Rs 66.22)
© Thomson Reuters 2016