KKR in talks for control of Firstsource

April 14, 2010
Singapore Democrats

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Pratish Narayanan & Indulal P.M.

U.S. private-equity firm Kohlberg Kravis Roberts & Co is in talks to buy a controlling stake in Indian back-office service provider Firstsource Solutions, three sources with direct knowledge of the matter said. KKR is negotiating to buy a stake totalling about 68 percent of the IT services company from No. 2 Indian lender ICICI Bank, Singapore state investor Temasek Holdings and U.S.-based banking technology group Metavante, the sources said.

A deal has not been finalised, but a sale price could be about $250 million, said two of the sources. None of the sources wished to be named as they were not authorised to speak to the media.

Firstsource has a market value of $300 million.

Private equity investment in India fell more than 60 percent in 2009 when the global financial crisis deepened, but a string of high-profile deals this year suggests a rebound.

Private equity firms invested about $4.1 billion through 269 deals in India during 2009, compared with $10.3 billion from 452 deals in the year earlier, according to Venture Intelligence, a research service focused on private equity and M&A.

In the first three months of 2010, private equity deals in India totalled about $2 billion, Venture Intelligence said.

KKR frontrunner?

The three sources characterised KKR as the frontrunner for Firstsource. Another source familiar with the matter said KKR was in talks for Firstsource but did not agree that the buyout firm is the frontrunner and declined to elaborate.

Rival U.S. private-equity firm Carlyle Group was also eyeing the stake, but was not a strong contender in the process, two of the sources said. Carlyle declined to comment.

It could not be determined whether there were other bidders pursuing First Source.

“ICICI Bank has stated consistently that its investment in Firstsource is a financial investment and the bank would look at reducing its holding over a period of time. The bank evaluates all opportunities on an ongoing basis,” ICICI said in a statement e-mailed to Reuters.

Firstsource and KKR declined to comment. Temasek declined to comment and Metavante could not be reached for comment.

On April 8, Firstsource said its chief executive and managing director, Ananda Mukerji, would be stepping down on July 27 to pursue “other opportunities.” He will be replaced by Matthew Vallance, a member of the company’s board.

Last November, sources told Reuters that ICICI, Temasek and Metavante had hired Citigroup to arrange the sale.

The three companies tried to sell Firstsource in 2008 in a deal valued at about $400 million, hiring Goldman Sachs, but potential buyers baulked at the price amid the global financial crisis, sources told Reuters earlier.

Private equity firms typically make minority investments in India, where entrepreneurs are often reluctant to sell out and full buyouts are rare.

Recently, KKR led a consortium investing about $225 million in India’s Coffee Day Resorts, owner of coffee shop chain Cafe Coffee Day, a source said.