the ib league case study

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The IB LeagueCampus case study

Background :

You have been selected as one of the top Investment Bankers in the country to present a sellside case to the senior management and the Board of “Mphasis Ltd” (“Mphasis” or “thecompany”). Your idea of a strategic transaction related to Mphasis at this juncture has generatedgood interest amongst the Board of the company, which has decided to have a detailedpresentation from your team on the aforementioned idea.

Besides, the Board would also be interested in knowing your take on the current dynamics in thesector and would also be keen to know your views on the valuation for the entire company.

Company overview :

Founded in June 2000, Mphasis operates as an information technology solutions provider. Itoffers applications, business process outsourcing and infrastructure services. The companyoperates its business through the key segments as shown in the table below. It serves thebanking and capital markets, insurance, manufacturing, communications, media andentertainment, healthcare and life sciences, transportation and logistics, retail and consumerpackaged goods, energy and utilities and government sectors. The company is headquartered inBangalore, India.

Divisional overview :

Banking and Capital Markets:

Mphasis combines its expertise in the banking industry with latest technology and state of the artmethodology to offer the most innovative solutions in areas like multi-channel delivery, mobiletechnologies, business analytics and business process improvement, among others.

The company’s integrated applications, business processes and infrastructure solutions andservices are designed to help clients meet their most challenging business and technologyneeds. Mphasis provides insights in banking and exhaustive domain experience to help clients inaccelerating growth strategies, business models and results.

Revenues by segment in INRm FY2015

Banking and Capital Markets 23,702

Insurance 8,125

Information Technology, Communication and Entertainment 9,578

Emerging Industries 16,398

Others 145

Total 57,948

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Insurance:

Mphasis caters to the broad insurance industry including life & annuities, property & casualty aswell as reinsurance. It provides solutions and services that help insurers address some of themost difficult business challenges. From distribution to underwriting, billing to claims, policyadministration to asset management, Mphasis is focused on helping insurers meet the needs ofpolicy holders and distribution partners.

Information Technology, Communication and Entertainment:

Mphasis’ industry experience and expertise in media entertainment can help transform thecompanies in this segment by aligning them with emerging business models, changing consumerbehavior, evolving technologies and competition.

Mphasis services telcos across the globe in both traditional operations as well as emergingtechnology areas. It optimizes traditional operations, infrastructure & business processes fortelcos and mobile virtual network operators and enabler using its solutions and services.

Emerging Industries:

Mphasis has done well to move beyond traditional business segments and has spread its wingsin emerging industries like retail, travel & transportation and manufacturing etc. Mphasis’services in retail comprise a mix of business consulting, technology consulting, architecture anddesign, implementation, management, maintenance of product/enterprise applications and legacyapplications services. Mphasis has extensive experience in the travel & transportation domainand has developed large and complex applications implementing a range of technologies forairline operation, airport management, cargo logistics and travel agency operations.

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More information: Since we know that you need to do a detailed study of the business of thecompany and its valuation, we have assigned a mentor who will help you in this exercise.

Our Star Banker - Mr. DealMan, has sent an email to you, the contents of which arereproduced on the next page - We would recommend that you take full cognizance of Mr.DealMan’s advice.

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Email from Mr. DealMan:

“Folks, in any investment banking deal, a banker is supposed to have a deep understanding ofthe companies under consideration. As this is a sell side deal, I would recommend that you startwith knowing this company’s business in detail and how it is performing in the IT industry withrelation to its peers. A good starting point for you would be the company’s fillings on its website:

http://www.mphasis.com/financial-results.html

Needless to say, once you have studied the company under consideration in detail, you shouldlook for more information from its peer set, looking at their annual reports and companypresentations.

Once you have analysed the companies, please also go through sector reports. This will give youenough knowledge on how the sector is progressing, what are the opportunities and challengesin the sector, etc. You can start by going through some of the reports on NASSCOM and its blog.

http://www.nasscom.in/research-reports

Once you have completed gathering information from the knowledge centers mentioned above,please also look for broker reports on the relevant company/industry. Here are some links whereyou can directly access the reports (in some instances you may have to create an id to accessthe reports) :

http://www.researchbytes.com/Mphasis-Limited-M0399.htm

http://www.motilaloswal.com/Financial-Services/Research/Search/Mphasis-COM/526299

http://www.moneycontrol.com/news/Mphasis/brokerage-reports-MB02-6months-5.html

To do a proper valuation for a sell side deal, you should also know at what valuation other peersin the same universe are trading and what were the premiums or discounts paid for similartransactions previously. I have selected a set of companies and transactions as a starting pointfor you. But as I am hard pressed for time, I cannot compile a final set of companies andtransactions that should be taken for this exercise. I would suggest that you select relevantcompanies/transactions from the list and complete your desired analysis.

Hope you make good use of all the suggestions above. Please keep in mind that these are onlyguidelines and you should not limit your work to the mentioned suggestions / links. “

All the Best !!!

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CompanyMarket Cap

(USDm)EV

(USDm)

EV/ Sales EV/ EBITDA EV/ EBIT P/E ratio Long-term Growth rate2015e 2016e 2015e 2016e 2015e 2016e 2015e 2016e

Accenture 66,169 62,723 2.0x 1.9x 12.1x 11.4x 13.8x 12.8x 19.9x 18.1x 8.90%

Atos 7,630 6,674 0.6x 0.5x 5.2x 4.7x 7.7x 6.8x 12.6x 11.2x 15.50%

CGI 12,344 13,618 1.7x 1.6x 9.1x 8.7x 11.8x 11.2x 15.1x 14.0x 9.70%

CMC 936 885 2.1x 1.8x 13.2x 11.9x n/a n/a 18.4x 16.1x n/a

Cognizant 36,239 33,964 2.8x 2.4x 14.0x 12.2x 15.7x 13.4x 19.9x 17.2x 16.90%

CSC 9,508 10,107 0.9x 0.9x 4.8x 4.7x 9.0x 8.5x 13.5x 12.5x 9.90%

Cyient 975 888 1.7x 1.5x 11.5x 9.5x 13.7x 11.1x 16.3x 14.0x 21.00%

eClerx 727 652 3.6x 3.1x 11.0x 9.3x 13.1x 11.2x 17.0x 14.8x 17.20%

EXL 1,197 1,109 1.8x 1.6x 11.5x 9.8x 16.7x 13.7x 18.5x 16.0x 14.30%

Facebook 242,903 230,874 13.6x 10.2x 22.1x 16.6x 26.0x 19.3x 42.6x 32.3x 35.80%

Firstsource 348 490 1.0x 0.9x 7.3x 6.4x 8.5x 7.5x 7.7x 6.4x n/a

Fujitsu 11,241 14,249 0.4x 0.4x 5.1x 4.7x 10.3x 8.8x 11.5x 10.3x 10.00%

Genpact 4,774 5,102 2.1x 1.9x 12.5x 11.1x 15.6x 13.8x 18.6x 16.1x 12.50%

Google 373,501 312,475 5.2x 4.5x 10.8x 9.2x 13.1x 11.2x 19.2x 16.7x 14.90%

HCL Tech 20,449 19,040 3.1x 2.7x 13.0x 11.6x 13.7x 12.2x 16.9x 15.1x 15.00%

Hexaware 1,197 1,122 2.4x 2.1x 12.8x 11.1x 14.0x 12.0x 18.6x 16.0x 16.40%

HP 55,906 62,597 0.6x 0.6x 5.0x 5.0x 6.8x 6.7x 8.3x 7.9x 4.20%

IBM 161,904 192,075 2.3x 2.3x 8.4x 8.3x 10.1x 10.1x 10.3x 10.0x 6.40%

Infosys 33,764 28,576 3.2x 2.8x 11.5x 10.2x 12.4x 11.1x 16.6x 15.0x 12.20%

Just Dial 1,313 1,178 10.3x 7.8x 39.2x 25.9x 44.7x 28.8x 56.4x 37.2x 42.80%

KPIT Tech 294 292 0.6x 0.5x 5.3x 4.4x 6.9x 5.4x 8.4x 7.2x (4.80%)

Microsoft 364,405 300,835 3.2x 3.0x 9.0x 8.2x 10.7x 9.6x 16.7x 14.6x 10.70%

Mindtree 1,599 1,453 2.3x 2.0x 11.7x 10.0x 13.7x 11.7x 17.5x 15.1x 16.20%

Mphasis 1,311 997 1.2x 1.0x 7.5x 6.3x 8.2x 7.0x 12.5x 10.6x 12.00%

NIIT Tech 368 318 0.8x 0.7x 5.2x 4.5x 7.1x 6.1x 11.8x 9.3x n/a

NTT Data 11,918 14,528 1.1x 1.1x 6.8x 6.5x 17.9x 16.0x 28.6x 23.4x 9.30%

Oracle 179,084 167,109 4.3x 4.2x 9.2x 9.2x 9.7x 9.6x 14.5x 13.9x 6.90%

Persistent 779 684 2.1x 1.8x 9.9x 8.4x 12.6x 10.4x 16.3x 14.1x n/a

Polaris 260 228 0.7x 0.7x 6.1x 5.1x 7.2x 6.1x 9.1x 7.6x 14.70%

SAP SE 83,568 90,028 4.0x 3.8x 11.9x 11.1x 12.8x 12.1x 17.0x 15.7x 9.10%

Syntel 3,686 2,955 3.0x 2.7x 10.4x 9.2x 11.1x 9.7x 16.0x 14.1x 15.00%

TCS 77,803 74,643 4.5x 4.0x 16.0x 13.9x 16.9x 14.7x 21.5x 18.7x 16.50%

Tech Mahindra

7,345 6,889 1.7x 1.5x 10.0x 8.5x 11.7x 9.9x 15.5x 12.9x 17.40%

Twitter 22,263 20,306 9.2x 6.2x 37.9x 22.2x 70.5x 37.0x 105.0x 53.9x 66.30%

Wipro 21,129 18,324 2.3x 2.1x 10.4x 9.5x 11.8x 10.7x 14.8x 13.5x 11.10%

WNS 1,396 1,232 2.3x 2.1x 10.9x 10.1x 17.7x 15.0x 15.6x 14.4x 15.70%

Xerox 11,570 18,683 1.0x 1.0x 7.1x 6.8x 11.5x 10.2x 10.5x 9.6x 5.20%


Trading multiples1

Note:1. Valuation multiples calendarized to December year end

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Announcement Date Target Acquiror

Deal Value(USDm)

EV(USDm)

EV/EBITDA

EV/Sales

17-Jun-15 Anite plc Keysight Technologies Inc 605.67 559.16 27.75x 3.23x

15-Jun-15 DealerTrack Technologies Inc Cox Enterprises Inc 4,460.21 4,460.21 38.73x 4.70x

12-May-15 AOL Inc Verizon Communications Inc 4,285.60 4,267.90 13.83x 1.66x

7-May-15 Telecity Group plc Equinix Inc 4,021.73 4,021.73 16.15x 7.58x

27-Apr-15 iGate Corp Cap Gemini SA 4,447.67 4,447.67 17.54x 3.45x

15-Apr-15 Beijing Chuanyun Logistics Investment Alibaba Health Information Technology 1,267.32 2,481.02 235.12x 187.51x

12-Feb-15 Orbitz Worldwide Inc Expedia Inc 1,582.43 1,582.43 12.32x 1.74x

8-Dec-14 EVRY ASA Apax Partners LLP 1,024.16 1,024.16 6.22x 0.56x

25-Nov-14 Advanced Computer Software Group plc Vista Equity Partners LLC 1,194.04 1,194.04 17.63x 3.59x

16-Oct-14 CMC Ltd Tata Consultancy Services Ltd 514.31 1,011.79 15.65x 2.60x

13-Jun-14 OpenTable Inc Priceline Group Inc 2,613.44 2,495.84 53.62x 12.58x

26-May-14 Kakao Inc Daum Communications Corp 6,985.22 6,859.89 111.23x 33.36x

22-Jul-13 Yahoo! Inc (3.7%) Yahoo! Inc 1,164.40 28,967.10 36.46x 6.01x

8-Nov-12 KAYAK Software Corp Priceline.com Inc 2,041.93 1,976.47 37.58x 7.45x

29-Jun-12 3i Infotech Ltd Various investors 408.54 483.91 12.53x 1.64x

31-May-12 CGI Group Inc Caisse de Depot et Placement du Quebec 974.09 6,453.35 8.40x 1.57x

22-May-12 Ariba Inc SAP AG Systeme Anwendungen Produkte 4,608.70 4,412.30 152.65x 8.79x

21-Mar-12 Satyam Computer Services Ltd Tech Mahindra Ltd 1,561.33 2,273.28 16.31x 2.06x

21-Feb-12 Alibaba.com Ltd Alibaba Group Holding Ltd 2,483.75 7,489.72 26.14x 7.40x

4-Aug-11 Emdeon Inc Blackstone Group LP 3,096.25 3,096.25 12.23x 2.88x

1-Jun-11 Telvent GIT SA Schneider Electric SA 1,939.62 1,982.55 12.13x 1.89x

27-Apr-11 SAVVIS Inc CenturyLink Inc 3,093.02 3,093.02 14.90x 3.32x

1-Apr-11 SRA International Inc Providence Equity Partners Inc 1,864.93 1,804.32 12.02x 1.06x

15-Nov-10 Isilon Systems Inc EMC Corp 2,584.13 2,470.32 410.35x 45.88x

26-Sep-10 Visma AS KKR & Co LP; Montagu PE 1,437.14 1,820.75 15.66x 3.17x

18-Aug-10 McAfee Inc Intel Corp 7,666.87 6,878.48 17.24x 3.43x

15-Jul-10 Dimension Data Holdings plc Nippon Telegraph & Telephone Corp-NTT 3,102.59 2,930.59 15.42x 0.75x

10-May-10Tivit Terceirizacao de Tecnologia e Servicos

Apax Partners LP 962.27 962.27 18.12x 1.92x

4-May-10 Interactive Data Corp Silver Lake Mgmt LLC; Warburg Pincus 3,351.96 3,045.94 11.28x 4.02x

5-Nov-09 IMS Health Inc TPG Capital LP (Texas Pacific); CPPIB 5,203.35 5,203.35 12.45x 2.40x

28-Sep-09 Affiliated Computer Services Inc - ACS Xerox Corp 8,414.76 8,414.76 7.57x 1.29x

21-Sep-09 Perot Systems Corp Dell Inc 3,884.50 3,734.50 12.33x 1.41x

26-Sep-08 Axon Group plc HCL Technologies Ltd 816.49 769.64 12.06x 2.03x

28-Jul-08 Detica Group plc BAE Systems plc 1,059.84 1,059.84 21.87x 2.62x

13-May-08 Electronic Data Systems Corp - EDS Hewlett-Packard Co 13,304.00 13,304.00 10.13x 0.60x

12-May-08 DRS Technologies Inc Finmeccanica SpA 5,601.97 5,601.97 25.67x 2.42x

6-Aug-07 Infocrossing Inc Wipro Ltd 556.23 556.23 20.69x 2.39x

2-Aug-07 CheckFree Corp Fiserv Inc 4,313.18 4,027.14 20.97x 4.37x

30-May-07 Ceridian Corp Thomas H Lee Partners; Fidelity National 5,190.18 4,904.98 14.56x 3.09x

18-May-07 aQuantive Inc Microsoft Corp 5,923.09 5,630.21 283.01x –

25-Apr-07 Covansys Corp Computer Sciences Corp - CSC 1,281.60 1,159.32 24.00x 2.55x

12-Mar-07 FastWeb SpA Swisscom AG 5,373.72 6,319.70 11.49x 3.67x

26-Oct-06 Kanbay International Inc Cap Gemini SA 1,175.25 1,100.82 26.63x 4.78x

25-Sep-06 Emdeon Corp Emdeon Corp 1,550.00 4,822.51 34.43x 3.78x

19-Sep-06 Symbol Technologies Inc Motorola Inc 3,900.00 3,863.23 72.19x 2.19x

25-Jul-06 Mercury Interactive Corp Hewlett-Packard Co 4,686.20 4,686.20 37.03x 6.83x

17-Apr-06 Flextronics Software Systems Ltd KKR, Sequoia Capital 900 1,004.17 29.11x 9.22x

3-Apr-06 MphasiS BFL Ltd Electronic Data Systems Corp - EDS 381.04 731.35 21.16x 3.47x

10-Jan-06 GTECH Holdings Corp De Agostini SpA 4,561.21 4,561.21 9.17x 3.58x

14-Dec-05 Anteon International Corp General Dynamics Corp 2,156.89 2,156.89 16.52x 1.49x

19-Sep-05 Unilog SA LogicaCMG plc 1,143.14 1,027.51 12.52x 1.28x

28-Mar-05 SunGard Data Systems Inc Investor Group 11,760.48 11,760.48 11.30x 3.31x

Precedent transactions

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