How Baring PE’s move to delist Hexaware comes after history of failed exits

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Baring Private Equity Asia, the private equity firm which owns software services Hexaware Technologies Ltd has been looking to exit the company for many years but each time the private equity firm tried, the soaring share price made the valuation of the company too expensive for any incoming buyers appetite.

In one more attempt, the company’s promoters on Friday announced plans to delist the company from stock exchanges, paving way for a long-awaited exit. HT Global IT Solutions, the holding company for Baring holds a 62.4% stake in Hexaware. On Friday, it offered Rs285 per equity share to purchase the remaining shares to take its shareholding to 90% and then go private. This announcement led to the share price rising 20% and it was locked in an upper circuit at Rs311.3 for the rest of the day.

“Baring’s perhaps has decided to delist as it is always easier to sell a completely promoter-owned, unlisted company. In that case, the incoming buyer will not have to go through the rigmarole of an open offer and buying out retail investors. Considering that the stock prices are low right now it makes sense,” said Shriram Subramanian is managing director at InGovern Research Services, a corporate governance advisory firm.

Taking Hexaware private could ease Baring’s efforts to exit the company, something it has been trying for the last few years but with no success yet.

Baring PE had acquired a controlling stake in Hexaware in 2013 from promoter Atul Nishar and PE firm General Atlantic, followed by the acquisition of shares from public shareholders, which took its shareholding in the IT services firm to 71.25%. Baring spent around Rs2,850 crore for the acquisition.

The PE firm had first explored a sale of the IT services company in 2016. The PE firm had reached out to French IT company Capgemini and private equity firms Blackstone and Carlyle, according to a report by The Economic Times.

Later in 2017, the company had informed shareholders that Baring was exploring the sale of the company’s shares to investors outside of India.

Finally, in 2018, Baring managed to sell an 8% stake in the company through block deals on the market in 2018, which it sold for Rs1,120 crore. However, the stake was sold at a significant discount of 10% to the prevailing market price, which led to a steep single-day fall of 16.5% in the company’s stock price.

“They (Baring) have faced an issue with sharp swings in the stock price whenever they have tried to look at a stake sale in Hexaware. Talks of stake sale have in the past driven the stock price to levels where the buyers become uncomfortable in closing the deal,” said a person aware of Baring’s Hexaware plans.

At one point, Baring also contemplated merging Hexaware with its latest IT services acquisition NIIT Technologies Ltd, Mint reported in January 2019.

Baring’s plans to take the company private come at a time when the market is optimistic about the company’s prospects, despite the COVID-19 disruption. The company has 12 buy ratings, 11 hold ratings and only five sell ratings from brokerages, according to data from Bloomberg.

“We reiterate accumulate with a new target price of Rs319 from Rs255 based on 13x (from 10x) CY21E EPS of ₹24.5 (from ₹25.5). Improved depth of customer relationships and better operational execution, leading to margin beat and robust $163 million net new win on LTM basis deserves higher multiple,” said Elara Capital in a recent report.

“The pricing of the delisting would entirely depend on what the current investors and promoters believe is the intrinsic value of the company and promoter may consider buying out other investors even at a much higher price than the indicative offer price,” said Subramanian.

This article was first published on livemint.com.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.

Singapore Reporter/s

In Singapore, we are looking to double our reporting team by this year-end to comprehensively cover the fast-moving world of funded startups and VC, PE & M&A deals. We want reporters who can tell our readers what is really happening in these sectors and why it matters to markets, companies and consumers. The ability to write precisely and urgently is crucial for these roles. Ideal candidates must have to ability to work in a collaborative, dynamic, and fast-changing environment. We want our new hires to be digitally savvy and ready to experiment with new forms of storytelling. Most importantly, we are looking for hard-hitting reporters who work well in a team. Collaboration and collegiality are a must.

Following vacancies can be applied for (only in Singapore).

Following vacancies can be applied for (only in Singapore).   

  • A reporter to track companies/startups that have raised private capital, and have the potential to become unicorns. SEA currently has over 40 companies with a valuation of over $100 million and under $1 billion.
  • A reporter who can get behind the scenes and reveal how funding rounds are put together, or why they’ve failed to materialise. She/he in this role will largely focus on long-format stories. 
  • A journalist to track special situations funds, distressed debt and private credit (from the PE angle) across Asia.