A Warburg Pincus affiliate will invest $360 million (Rs 2,323 crore) for a 43% stake in Tata Technologies Limited, enabling the leading engineering and services provider from India enhance their business from automotive companies other than the parent Tata Group.
The deal, intricately structured, will see the global private equity giant as a significant minority shareholder, holding almost an identical stake as that of Tata Group companies, thus avoiding the overhang of the conglomerate.
Warburg Pincus will purchase approximately 30% from Tata MotorsBSE 1.68 %, and its subsidiary Sheba Properties Limited. Besides, it will also buy the entire 13% stake held by Tata Capital — i.e 8.7% from Alpha TC Holdings Pte Ltd and 4.3% from Tata Capital Growth Fund I.
Tata Technologies caters to blue-chip automotive, aerospace and industrial machinery manufacturers and has in its roster more than 8,500 employees located in 23 countries.
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Citigroup Global Markets India Private Limited acted as the sole financial advisor to Tata Motors, and Tata Capital Investment Banking acted as the sole financial advisor to Tata Capital. The transaction is subject to customary regulatory approvals, said the company.
After the transaction, Tata Motors and affiliates of the Tata Group will continue to retain a significant minority interest of approximately 43% in Tata Technologies, with the remaining ownership held by the management team and other shareholders, the company said in a statement.
Tata Motors had engaged with several sovereign wealth funds and private-equity investors, including Carlyle, Blackstone, Apax, Advent, and CPPIB, to buy into Tata Technologies after the formal process was launched by Citi in mid-2015. However, Tata Technologies chose to engage actively with Warburg almost a year ago.
ET was the first to report about Warburg’s imminent investment in Tata Technologies in its edition dated February 16. Tata Motors has been looking to monetise several of its investments, including that in Tata Technologies. It even toyed with the idea of selling a controlling stake in the company before, at a $1billion valuation. Separately, Tata Motors even explored an IPO for Tata Technologies, although the plan is now discarded.
C Ramakrishnan, Group CFO, Tata Motors said the partial divestment is part of Tata Motors’ plan to strategically monetize part of the value created while also inducting a valuable partner, together with whom the company can excel in its next phase of growth.”
Explaining the rationale behind acquiring the stake, Vishal Mahadevia, MD of Warburg Pincus India said: “Warburg looks forward to backing the strong management team at Tata Technologies and leveraging Warburg Pincus’ global network and prior experience in the engineering services space to help grow the business, organically and inorganically, and create value for all stakeholders.”
Tata Technologies had a turnover of $423 million in FY17 and is sitting on cash of $100 million. The company is currently on the lookout for a couple of acquisitions in Europe, the US, and India. Likely acquisitions are in the domains of connected technologies, IOT, and new-age automotive technology, which will the help company achieve its target of $1billion sales by the end of the decade.
The company will invest $50-60 million over the next two to three years to ensure a 12-15% organic growth trajectory it has witnessed in the existing business.
Warburg, globally, has been an active investor in high-end or niche engineering services firms. Along with Bain Capital and Silver Lake Partners, it acquired the Texas-based provider of software services for auto industry, Uni Graphic Solutions or UGS Corp, before selling it to Siemens for $3.5 billion in 2007.
