Shashank Singh, who co-heads the India office for private equity firm Apax Partners spoke to BT's Rahul Sachitanand on why the firm backed the iGate-Patni deal and what the future is for the combine.
We came across Patni three years ago when we were closing a deal to invest in Tivit, a company focused on the domestic tech market in Brazil. We were conducting a due diligence of that company and the overall market for outsourced IT and one of the names that came up was Patni, which was an established and stable name. Since then there have been numerous suitors but I think the founders were too attached to the firm to sell. Patni was then in need of new energy to jumpstart the business and Narendra Patni wanted to buy out General Atlantic and his brothers to push growth. Differences in valuation stymied any progress. Chasing the deal:
The iGate angle: I was introduced to Phaneesh Murthy six months ago and I think he's got a good business model which requires serious scale. iGate is growing at 45 per cent per annum, compared to 20-plus per cent for its tier 1 rivals and in the low teens for its smaller peers in India. Phaneesh is excellent at making market transitions (from staffing to outsourcing and offshoring) and he's proven his skills with iGate. A billion dollars in revenue will give him at least a seat at the high table. That should help him then inch his way into larger $100-million-plus deals.
iGate was overhauled: From a staffing (read body shopping) unit called Mascot Systems, Phaneesh has catalysed the firm's transition to higher value technology outsourcing., In the last four or five years, the firm has gone from operating margins of -9 per cent to 20 per cent and the transition is yet ongoing. Now, the momentum needs to be sustained.
The market is changing too: IT and BPO outsourcing is a large and growing market and is seeing tailwinds of secular growth. There has been a sharp shift in the nature of deals, with 100 per cent of new deals announced this year have gone to India-based vendors. This trend could be useful for the iGate-Patni combine, which can offer its billion dollar heft and combination of skills in banking and financial services and insurance (the biggest spender on technology) to get its toe in the door.
Cross-selling to Apax's clients: We are a sector-focused private equity firm with a focus on five sectors (tech & telecom, retail & consumer, media, healthcare and financial & business services) and we invest in companies valued from 1 billion euros to 5 billion euros. We think there is opportunity to cross-sell to our portfolio and plan to introduce our investment to some portfolio companies soon. We will have one board member on iGate board.