An affiliate of global private equity fund Warburg Pincus is set to invest $360 million (Rs2,323 crore) for a 43 per cent stake in Tata Technologies Limited, enabling the leading engineering and services provider from India enhance its business from automotive companies other than the parent Tata Group.
The intricately structured deal will see the global private equity giant as a significant minority shareholder, holding almost an identical stake as that of Tata Group companies.
Warburg Pincus will purchase approximately 30 per cent from Tata Motors and its subsidiary Sheba Properties Limited. Besides, it will also buy the entire 13 per cent stake held by Tata Capital - 8.7 per cent from Alpha TC Holdings Pte Ltd and 4.3 per cent from Tata Capital Growth Fund I.
The deal will see Tata Capital fully exiting the company by divesting its 13 per cent stake held by Tata Growth Fund and Alpha TC Holdings, while Tata Motors will sell 30 per cent to get its holding down to 43 per cent, the same as the new investor.
The deal comes after the Tata Group has reportedly decided to bring down cross-holdings in the group so that these companies can focus more on their core businesses as well as unlock shareholder value. According to reports, various group companies own shares worth tens of thousands of crores in each other and this was one of the charges that the ousted chairman Cyrus Mistry had made against Tata Sons' management.
Tata Technologies is a global engineering services and product development IT company which employs over 8,500 in 23 countries. It provides services for advanced engineering, R&D, and connected IT solutions.
The company had revenue of $423 million in fiscal 2017 and is targeting a 16-20 per cent topline growth over the next three-five years, PTI quoted managing director and chief executive Warren Harris as saying.
Its pre-tax profit stood at $73 million in the last financial year, while net profit was $53 million, he said.
Harris denied any plans of listing, saying Warburg typically stays invested in a company for five to seven years. But he clarified that Warburg's involvement will be more than as a financial investor, saying it will guide the company in its next phase of growth through its two board positions.
"The partial divestment is part of Tata Motors' plan to strategically monetise part of the value created while also inducting a valuable partner, together with whom the company can excel in its next phase of growth," Tata Motors group chief financial officer C Ramakrishnan said.
Harris said the deal needs to be approved by the Competition Commission, which will take about two months.
The focus of the company at present is to increase the non-Tata group revenue to beyond the current 50 per cent, and also the contribution of offshoring or the work done in the country to beyond the current 27 per cent.
At present, the auto industry accounts for 70 per cent of its revenues, followed by around 12 per cent from the industrial and machinery sector and 9 per cent from the aerospace sector.
Harris said the company is also looking at bidding for defence projects. It is also looking at more acquisitions, he said, adding one such deal was sealed earlier this year.
Following the transaction, Tata Motors and its affiliates will continue to hold 43 per cent in Tata Technologies with the remaining ownership being held by the management team and other shareholders.
Warburg Pincus India managing director and co-head Vishal Mahadevia said the company is looking forward to back the management team at Tata Technologies and leveraging Warburg Pincus' global network to help grow the business.