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Mint
23-06-2025
- Business
- Mint
Big money, small bytes: Why PE firms are crushing on smaller tech ventures
Private equity firms have found their new interest—India's nimble, under-$250 million IT services companies. Global players, including Blackstone Inc., EQT AB and Multiples Alternate Asset Management, are pumping capital into these smaller tech firms, drawn by their faster growth trajectories, lean operations and product-focused strategies. At least three experts attribute this trend to the higher growth prospects and leaner teams of smaller IT companies. Multiples invested $200 million to buy a controlling stake in QBurst in February, whereas EQT bought WSO2 in August last year. EQT also bought Indium in December 2023, and Blackstone bought a controlling stake in R Systems in November 2022. This bet on smaller tech service providers comes as India's mid-caps have outgrown their larger peers for the last two years. Last year, most IT outsourcers earning less than $5 billion in annual revenue grew in double digits, compared with larger peers, which grew between 3% and 5%. Analysts attributed this trend to quicker AI adoption and leaner teams. Also read: Cognizant and Infosys are tapping a new trend in IT deals to combat tough times Multiples Alternate Asset Management bought a controlling stake in Thiruvananthapuram-based QBurst Technologies Pvt. Ltd in February for $200 million, making it the PE firm's largest investment in the tech services space, according to a Mint report on 6 February. Mint could not independently ascertain Multiples PE's stake in the software company. 'Multiples is focused on technology services companies operating in high-growth areas. Companies like QBurst, being nimble and agile, can disproportionately scale much faster by acquiring new customers and expanding services to existing clients," said Manish Gaur, head of enterprise tech at Multiples, in response to Mint's questionnaire on Thursday. 'The PE firm is involved at the board level and providing guidance on overall financial goals and expectations. They are also helping with reviewing the new strategy and getting the right set of external consultants and advisors to work with the new management team on the ongoing transformation," said QBurst in an emailed reply to Mint on Thursday. Also read: TCS and Infosys scramble as top clients trim budgets The PE firm, with nearly $3 billion in assets under management (AUM), is expected to focus on the enterprise tech sector, where it plans to invest nearly $2 billion over the next five years. Small is big 'The company has rich capabilities in digital product engineering value chain, enabling it to grow faster than the market without getting constrained by legacy IT services offerings," said Gaur. At least one analyst echoed a similar perspective. 'With digital technologies driving a structural shift in the industry, PE firms see this as a great opportunity to reimagine the business, operations and financial models of small and mid-sized IT services firms. It's for this reason that they are doubling down on their investments as they believe that they can drive strategic transformation and the growth trajectory of these companies, resulting in outsized value creation," said Ramkumar Ramamoorthy, partner at Catalincs, a tech growth advisory firm. EQT Partners made a similar investment in May last year. The Swedish private equity firm, with an AUM of about $313 billion, acquired California-based software firm WSO2 through its Baring Private Equity fund. The acquisition was completed in August. 'EQT's involvement has added significant momentum to our growth strategy. Their investment and partnership have helped us scale both operationally and geographically. We've been able to accelerate product development, especially in our SaaS offerings, and expand in key markets like North America, Europe, the Middle East and Africa," said WSO2 in response to Mint's questionnaire on Thursday. The IT firm added that EQT is 'not driving day-to-day decisions but is a sounding board for long-term thinking." While the company denied plans of an initial public offering (IPO) at this point, it said going public was a possible outcome. However, this was not EQT's first such venture. The private equity firm bought a majority stake in Chennai-based digital engineering firm, Indium Software, months before in December 2023. Supporting quick growth 'BPEA EQT Mid-Market Growth will support Indium in its next phase of growth, drawing on EQT's global experience in tech services with about $11 billion invested in the sector in Asia, in-house digitalization capabilities and a global network of industry experts," said EQT in a release on 22 December 2023. PE companies have also had their focus on listed companies of a similar size. Blackstone, the world's largest private equity firm, invested $359 million in November 2022 to acquire a majority stake in R Systems International Ltd. The PE giant even sought to increase its stake to 90% from 52% in May 2023 to take the company private, but could not draw enough interest from public shareholders. Also read: No more waiting: IT firms go deal-hunting amid slowdown The New Delhi-based digital engineering company reported ₹17.4 billion ($203 million) in revenue last year, up 3.4% from the previous year. Each of the IT firms mentioned above has between 1,000 and 5,000 employees. A second expert attributed the PE bet to leaner teams and AI-led efficiencies. 'PE firms prefer investments in smaller IT firms because they are asset light, teams are more agile, return on capital is decent and more than four-fifths of the revenues are recurring," said Pramod Gubbi, founder of Marcellus Investment Managers. 'There is also scope for higher efficiency gains through AI as they don't have complex, legacy structures," said Gubbi. A third expert said that high PE investments result from most of these firms focusing on software products rather than mundane back-end tech services. 'A lot of smaller IT firms are focusing on software products. There is more hype for such companies as these companies have larger revenue potential and are also asset-light and have fewer employees, which fuels more agility within teams," said an analyst in Mumbai on condition of anonymity. This is not the first time that PE firms have ventured into the sector. Blackstone invested in Mphasis Ltd in 2016 and currently has over 40% stake in the country's seventh-largest company. Tenth-largest Hexaware Technologies Ltd was acquired by Carlyle Group in 2021 from EQT for a $3 billion valuation.
Reuters
11-02-2025
- Business
- Reuters
India must ease rules for domestic investors, Multiples Asset Management CEO says
NEW DELHI/MUMBAI Feb 11 (Reuters) - India must simplify rules for domestic funds investing in local companies to ensure a level-playing field with foreign peers, Renuka Ramnath, the founder and CEO of Multiples Asset Management said on Tuesday. The Mumbai-based Multiples is one of India's leading private equity investors. Founded in 2009 by Ramnath, Multiples has an investment portfolio that includes companies such as Delhivery ( opens new tab and Dream 11. The firm manages around $3 billion in assets across 30 companies via four funds. The fund plans to invest $2 billion in India's technology sector over the next five years. More than 90% of control transactions, or deals involving a change of ownership of a company, are currently being done by foreign funds, Ramnath, a former chairperson of Indian Venture Capital Association, said. "(This happens) not because local funds don't have the capability, but they don't have the avenue to do it," she said. The markets regulator's rules on co-investments by Indian funds into local companies and restrictions on Indian banks, insurance companies and pension funds from investing in local companies lead to "missed opportunities", she said. The regulator's new rules for co-investments by portfolio management services, introduced in 2022, have led to complications in deal structuring and documentation, according to Ramnath. Get the latest news from India and how it matters to the world with the Reuters India File newsletter. Sign up here.
