With a new parent, Mphasis eyes acquisition in $50-100-m space

A year after shrugging off its HP legacy, Mphasis Corporation, which was acquired by PE fund Blackstone, is looking to grow its business and expects to acquire companies in the $50-100 million space.

“The acquisitions we plan to look for will be based on capabilities and typically will involve ‘quick burst’ capability in a particular area – say analytics,” said Nitin Rakesh, who headed Nasdaq-listed Syntel and took over as the CEO and Director of Mphasis nine months ago. Last year, Blackstone bought 60.5 per cent in Mphasis for $1 billion from HP in one of the biggest private equity buyouts last year.

The last acquisition Mphasis made was that of Digital Risk in 2012, when it was still a part of HP. Rakesh in an interview with BusinessLine said during the last 6-9 months, the company has been centralising the company’s capabilities so that all its business practices are made available across the country.

“We have managed to bring momentum through some good performances during the last two quarters and is showing up in our numbers. It is still early days as well begun is half done,” Rakesh said.

He said the company has put together a three-pronged strategy. The first strategy is to identify the specific markets, which services to offer and the kind of differentiation. Mphasis also wants to play in the US and European markets from where it gets in excess of 80 per cent of its revenues.

“Right now we have taken bets on service lines like cognitive and cloud computing as areas of our play. What is our differentiator as a service provider? We believe we can help clients take up digital transformation in every consumer-facing business — like using algorithms that can predict the likelihood of say a mortgage going bad,” Rakesh said.

He said during May, the company had told analysts that there are four clients signed from Blackstone. There are several other companies in the Blackstone portfolio whom the company is planning to work with.

“Our deal wins are up compared with our regular trajectory. It used to be $70-90 million a quarter in the direct business. Now last quarter, it was $183 million and this quarter $123 million. Some of this is contributing to the wins from Blackstone.” He did not disclose the names of these clients.

Mphasis has divided its business segments into direct international, HP-DXC and direct others. Direct international are those customers who directly contact Mphasis. There are three components in this business: Direct core, digital risk and product portfolio. The direct core is the core IT work for all these customers, which are about 57 per cent of the company’s overall revenues. That is about half of a billion dollar of its business which is also more comparable to third-party IT services competitors like tier one and two as you call them. The digital risk was an acquisition the company made in 2014, which is about a $220-million business today. The product portfolio is again an acquisition that was made a few years ago.

As a percentage, direct international is about 70 per cent of Mphasis revenues. HP DXE is about 26 per cent of revenues and direct others are about 3.5-4 per cent of its revenues. Over a period of time, the business of the direct others is expected to tail off because the company will not invest in that business.

Interestingly, Mphasis chose to move slowly away from traditional application development or maintenance kind of projects as at that time companies who had a larger manpower resource pool coupled with low costs stood a better chance of winning deals. “We had to stand in queue and then had giants (like TCS) already bidding for these projects, wherein even if we got a project, it was a small one,” said Rakesh. Mphasis currently gets 70 per cent of its business from BFSI and now HP contributes 26 per cent.

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