Private equity (PE) giant Carlyle has agreed to acquire a significant minority stake in engineering services firm Quest Global, the two companies said on Tuesday.
Simultaneously, Carlyle and Quest will together buy back all shares from the company’s existing investors, Bain Capital LP, Advent International LP, and GIC Re and extinguish them. Alongside, founder Ajit Prabhu will bring in additional funds to increase his stake.
According to a person aware of the deal, Carlyle will invest $500 million; once the shares bought back are extinguished and Prabhu makes his investment, Carlyle will end up with a stake of about 30%. The transaction values Quest Global at around $1.8 billion, the person said on condition of anonymity.
The buyback is worth about $200 million, while Prabhu will invest $120 million to increase his stake by 8% to about 40%, the person added.
Mint first reported Carlyle’s plans to invest in the Singapore-based Quest Global on 23 May. Earlier, PE firm Apax Global was also in the race for the Quest Global stake.
Founded in 1997, Quest Global is an engineering, research and development (ER&D) services provider for the design, product development, and operations of complex engineering systems. The company has 67 delivery centres and offices in 17 countries. Carlyle was an early investor in Quest Global, exiting it in 2003.
The company aims to close FY24 with close to $900 million in revenue and earnings before interest, tax, depreciation, and amortization (Ebitda) of $165 million. It is planning to tap public markets over the next three years.
For Carlyle, this is one of the biggest investments in recent times. Its $500 million investment is expected to help Quest pursue its inorganic growth strategy and widen global growth. In the last 12-18 months, it has invested $450 million in private lender Yes Bank, $275 million in wellness services provider VLCC, and $100 million in sanitary and bath fittings maker Varmora Granito. “There are three dimensions where Carlyle will be looking to work closely with the management team on to further strengthen the business—firstly in helping to shape the merger and acquisition agenda: Helping the company integrate existing acquisitions well and supporting them in taking bigger bets to expand its capability set; secondly, continuing to leverage Carlyle’s global network to expand client relations and deepen existing ones, and lastly to help the company be ready for a capital markets event,” said Amit Jain, the managing director and head of Carlyle India Advisors.
Carlyle is betting big on the ER&D sector. “ER&D space and Quest Global play on the global innovation agenda across verticals, for instance, electric vehicles in automotives, carbon neutrality in energy, silicon and chip designing for artificial intelligence and machine learning, etc. Across these themes, product innovation requires research, design thinking, prototyping, and manufacturing at scale, which all translate into the need for ER&D capabilities. I believe the increasing trend of outsourcing ER&D work makes it even more interesting for Quest Global,” Jain said.
“It was a great value-added partnership with Carlyle the first time around, and I look forward to working with Carlyle again to propel us in the journey ahead,” said Ajit Prabhu, the chairman and chief executive of Quest Global.
The transaction remains subject to certain conditions precedent to closing, including customary regulatory approvals.
Barclays, JP Morgan, BNP Paribas and Latham & Watkins served as advisers to Quest Global for the transaction, and Deutsche Bank, Clifford Chance, KPMG and Trilegal served as advisers to Carlyle. Barclays, BNP Paribas, Citibank, Deutsche Bank, HSBC, ING, JP Morgan, Nomura, Standard Chartered Bank, Allen & Overy and Linklaters helped arrange financing for the transaction.