After Infosys and Capillary Technologies, another Indian IT company is taking an aim at the China market.
Tech Mahindra is reportedly in talks with Chinese conglomerate HNA Group for acquisition of the latter’s IT outsourcing unit Pactera. According to news portal Jiemian's report on March 26, negotiations for the same have entered the third round.
In the second round, Tech Mahindra made a competitive offer in preparation for its entry into the Chinese market. Along with Tech Mahindra, five other firms — China UnionPay, Digital China, Phoenix Tree Capital Partners, Neusoft Group and US-based Advent International — made offers ranging from USD 500 to 700 million. The negotiations had begun late 2018 and are expected to end by April this year.
According to a Reuters report in October, Alibaba’s Ant Financial too was in talks with HNA for the deal.
The data security of financial institutions and outsourcing operations are assessed by a relevant body according to Chinese law. But the “access” that Pactera has to the core information of clients' key businesses, source code and data could pose a hurdle to Tech Mahindra’s acquisition plans since it’s a foreign company.
Pactera, aka Wensi Haihui, is one of the biggest IT outsourcing companies in China. It has 18 delivery centres in the country including in Beijing, Hong Kong and Shenzhen; it has four centres in the US and Europe, and seven in other countries. Pactera opened its first India centre in Hyderabad last August.
Pactera was formed as a result of the merger between IT outsourcing companies Weisi and Haihui in 2012. A year later it was bought by the Blackstone Group for USD 625 million. HNA acquired it from Blackstone for USD 675 million in 2016.
HNA has been struggling financially for the last two years, according to the Reuters report. Since January 2018, it has sold or agreed to sell assets worth more than USD 20 billion. Pactera is next, whose clients include major domestic banks like China Development Bank and Export-Import Bank of China, finance regulation institutes like China Banking Regulatory Commission and China Securities Regulatory Commission, BAT (Baidu, Alibaba and Tencent), major telecom operators and others in the financial market.
Last year, Goldman Sachs had suspended Pactera’s early-stage work on its US IPO after the deal did not pass the bank’s internal due diligence standards. Pactera’s efforts to secure financing via convertible bonds were also unsuccessful. Late last year, it tapped CLSA, the Hong Kong brokerage owned by CITIC Securities, to arrange a deal worth up to USD 200 million with an eye on a future listing in Hong Kong. Despite discussions with potential investors it had failed to reach an agreement.