The battle for British Telecom (BT)’s stake in the Indian tech firm Tech Mahindra is getting hotter with buyout biggie Kohlberg Kravis Roberts & Co (KKR) throwing its hat into the ring. KKR joins some of the other global PE firms such as Apax Partners, Texas Pacific Group, Temasek and Carlyle who are also in the race to buy BT’s 31 percent stake which is currently valued at $680 million (~Rs 3,000 crore)
According to this report, the formal sale process will start in 10 days. BT has reportedly put a tag of over $800 million for its holding in Tech Mahindra. It is possible that BT may retain a small minority stake (5-10 percent) in Tech Mahindra.
Tech Mahindra, is an IT firm focused on the telecom vertical with around 24,000 employees. A JV between BT and M&M (M&M owns 44.25 percent) it has traditionally been dependent on business from BT and currently draws a little less than two thirds of its revenues from BT. Tech Mahindra reported a revenue of $934.7 million during FY08, a 44% year-on-year growth.
The overdependence on BT makes it an unattractive target for other IT firms who have been trying to diversify their operations to hedge against shocks from one dominant side of the business. BT’s potential exit has been doing the round for more than a year now. The deal would trigger an open offer even if BT decides to sell just half of its holdings.
For KKR this would be the second deal this year. The firm which made a big bang entry into India two years back with the $900 million acquisition of the software unit of Singapore-headquartered Flextronics, had early this year invested $250 million into Bharti Infratel, the telecom tower arm of Bharti Airtel.
Indian IT and ITeS space has witnessed some interesting deals over the last two years including Blackstone’s buyout of Intelenet, Warburg Pincus’ deal for WNS Holdings. Other fund houses such as TPG and Carlyle have been scouting for a deal in the IT sector. This has to do with the sharp correction in valuation in the sector even before the market crashed. The weakening dollar had putt a question mark over the earnings potential of firms while the slowdown in the US economy was expected to affect business going forward.