Baring PE buys IT firm Virtusa for $2 billion

BENGALURU: Baring Private Equity Asia (BPEA) is acquiring Nasdaq-listed IT services & digital engineering company Virtusa in an all-cash deal that values the transaction at $2 billion. The price per share is a premium of about 27% to the closing price of Virtusa’s stock on Wednesday.
Of Virtusa's over 22,000 employees, more than 15,000 are based in India. The company was founded in 1996 in Massachusetts by Sri Lankan-Americans Kris Canekeratne and his wife Tushara. The company is Sri Lanka's biggest tech employer. It counts Citigroup, JP Morgan and AIG among its customers, and had revenue of $1.3 billion in fiscal 2020.
Baring PE Asia also holds 62.4% stake in IT services company Hexaware and it has plans to take Hexaware private and delist it. Last year, it acquired a 30% stake in mid-sized IT services firm NIIT Technologies for about Rs 2,627 crore. It also bought healthcare-focused IT firm CitiusTech, valuing the firm at over $1 billion.
There's speculation that Baring may merge some of these assets to create a much larger organisation that can take on the bigger IT companies.
Jimmy Mahtani, managing director of BPEA, said, “Technology is continuing to drive marketplace evolution at an unprecedented pace, creating new opportunities as well as complexities. Virtusa’s global team of talented professionals, software engineering heritage, and deep domain expertise position it uniquely to help enterprises across industries accelerate their most strategic digital and cloud transformation initiatives.” he said. BPEA is one of the largest independent private equity firms in Asia with about $20 billion of assets under management.
Virtusa was recently caught in the midst of an activist tussle when its investor New Mountain Capital raised an issue with its board on its under-performance on margins, poor capital allocation and flawed compensation structure. New Mountain Capital, which holds nearly 11% in the firm, also sent nominations of three candidates to its board.
On July 20, the Virtusa board received an unsolicited proposal from an interested party to acquire the company. Following receipt of the offer, the board authorised the company and its financial advisors to engage with other potential strategic buyers and financial sponsors regarding a potential acquisition of Virtusa. As part of this process, the company signed non-disclosure agreements with five parties and engaged with two others. After an independent review of the alternatives, the Virtusa board unanimously decided to go with BPEA, the company said.
Kris Canekeratne, chairman and CEO of Virtusa, said BPEA has "an exemplary track record of valuing innovative and talented global teams and supporting and empowering the businesses in which it invests."