Warburg Pincus is considered as an influential investor for country’s top tech startups and existing ventures. The private equity (PE) firm is currently said to be engaged in advanced negotiations related to the acquisition of a minority stake of around 40% in Tata Tech. The deal is further said to be settled at ₹2,300 crore, as reported by an executive aware of the matter.
Warburg has been looking to drop 26 to 40 percent of equity at a valuation of ₹5,400 crore ($800 million) for almost a year and a half. The deal with Tata Technologies will reconcile the matter for the company, which is soon to conclude. Warburg also considered other options of selling a majority stake to investors and an initial public offering, though that didn’t work out well.
Further, talking about the deal, sources say,
Warburg is the only investor with whom the Tatas are currently engaged,It will be interesting to see if Tatas give a revenue commitment for the future. The worry is the industry still looks at the company as a quasi-captive unit.
Tata Technologies was initially established as a subsidiary of Tata Motors. The company presently works as a separate entity with their head office in Singapore. Founded in 1989, Tata Motors is still a major stakeholder for the company with 70% of shares. While 17% is owned Tata Group entities such as Tata Capital and senior executives, the remaining 13% is held by outside financial investors.
If the deal is confirmed, it will make Warburg Pincus the second largest shareholder for Tata Tech. Consequently, existing holders such as Tata Capital are likely to cash out, either in part or fully.
For the engineering design services company, Warburg, more than half its revenues and a magnanimous share of profit are generated from Tata units, particularly Tata Motors and its Jaguar Land Rover (JLR) division. The other third of its revenue is poured in by North America, Europe, and the Asia-Pacific regions. accordingly, the deal will strengthen the current relation for the duo.
Warburg further aims to reach an annual growth rate of 16% and targets $800 million (around ₹5,300 crore) in revenue by 2020 with $200 million of that through acquisitions. A Tata official who analyzed the matter said,
As stated before, from time to time, we review the performance of our non-core assets and companies and see how we can monetise them, We do not have any additional comment to offer at this point of time.
Tata Motors previously announced its plans for annual capital expenditure plans of ₹3,500 to 4,000 crore over the next three years. The expenditure will mainly focus on Tata’s car range and consumer products.
Apart from Warburg, Carlyle, Apax Partners, the Canada Pension Plan Investment Board (CPPIB), and the Government of Singapore Investment Corporation (GIC) have all assessed the company’s position for a partnership. Though, the analyzation didn’t work out well. Now, the Tata Group has mandated Citi to find a vital partner for the company.
Till now, Warburg has disposed of $3.8 billion in 51 companies in India since 1997. The equities giant further proposes to invest $8 billion in India over the next 10 years. Warburg Pincus looks at India as one of the most important markets in the world and is trying to deepen its involvement.
