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Carlyle buys into Quest Global, invests $500 million

The Carlyle Group will acquire a significant minority stake in Quest Global Services, a leading engineering services firm for an undisclosed amount, the two said in a statement on Tuesday.

According to sources, the private equity group will use funds managed by Carlyle Asia Partners to invest $500 million to acquire around 28% stake in Quest Global Services at $1.8 bn valuation, buying out existing investors Bain Capital, Advent Capital and GIC of Singapore.

Besides Carlyle, Quest’s founder Ajit Prabhu will also invest $120 million to rachet up his stake in the company to 40% from the present 32%. The company too will invest $180-$200 million through a share buyback, according to sources in the know.

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The Carlyle Group is investing in Quest for the second time after 2 decades. In 2003, the US fund invested $6 million in Quest Global for a minority stake.

“The long association was one of the factors in choosing Carlyle,” said Ajit Prabhu, Chairman & CEO of Quest Global. “In the past they helped makeg introductions when we were in our infancy. We now expect them to help us propel our next phase of growth. At Quest Global we believe engineering has the unique opportunity to solve problems of today.”

Established over 25 years ago by former General Electric Co engineer Ajit Prabhu and Aravind Melligeri in 1997, Singapore-headquartered Quest Global considers Pratt &Whitney, Rolls Royce, BMW, Airbus and GE among its clients. The company is a leading global player in engineering, research and development (ER&D) services for the design, product development and operations of complex engineering systems that ranges from medical devices to aircraft in-seat power modules. It writes software for doing MRI and CT scans, and for analysing those images. Leveraging on that expertise the company also works with aviation companies to lower aircraft inspection timelines.

It currently has a multi-disciplinary team of over 17,500 engineers, across 67 delivery centers and offices, in 17 countries globally.

Approximately 63% of the company’s revenues is generated from aerospace & defence, energy and semiconductor verticals. Other important sectors include healthcare, medical devices, hi-tech. Quest Global is expected to post an EBITDA of $165 million and revenue of $900 million in FY24, added sources.

The company is targeting $1 billion plus revenue and a 20,000 engineering headcount in the next 18 months, before its planned IPO. India, US, Japan will be its 3 key markets in the near future.

“Carlyle was the first early-stage private equity investor in Quest Global. We believe the company’s undivided client centricity, drive for engineering excellence, differentiated global delivery model and the entrepreneurial energy of the management team have enabled it to scale successfully across a diverse set of industry verticals,” added Amit Jain Managing Director and Head of Carlyle India Advisors. “In the last 2.5 years it has single handedly focussed to become a diversified or horizontal platform to drive the innovation agenda that is taking shape world over.”

With the investment from Carlyle, Quest plans to do more acquisitions, adding new clients and getting ready for an IPO in the next 3-5 years. The company has acquired more than a dozen companies since its inception.

“We have expertise in taking our portfolio companies public, manage acquisition of scale and then help in integration, ” Jain said.

The company lost business from to of its key clients Rolls Royce and Apple almost simultaneously during Covid, however it continues to serve them both. The loss of contracts also led them to focus on other new verticals like energy, especially renewable energy.

“Since Covid, we have been investing extensively in the semiconductor space given the growing relevance of AI,” said Prabhu. “There is a massive opportunity in the semiconductor industry – on equipment design, chip design, developing custom chips, custom silicon etc. There is significant opportunities also opening up as the world is moving from fossil fuels to green energy. We come in to find smarter ways to capture that energy and distribute them via smart grid systems. We have already help build control systems for gas turbine power plants. We are using that knowledge in renewables.”

Quest is an integrated supplier for providing support to chip manufacturers as well as hyperscalers (large cloud service providers) to design the silicon chip, helping companies to design their own chips and playing cutting across the entire value chain. “Industry is in a big transformation and there are opportunities for a company like us with global footprints,” Prabhu told ET.

“We have a similar IT services portfolio and we have big domain expertise in these areas. We know these business models well, through our investments in India like Hexaware,” said Jain. In 2021, Carlyle had acquired Hexaware Technologies for $3 billion in a largest tech buyout in India. It also acquired 24.04% stake in Airtel’s data centre subsidiary Nxtra Data for Rs1788 crore last year.

Three private equity investors including Apax Partners, Carlyle Group and TA Associates are shortlisted after an initial screening of non-binding bids to acquire a significant minority stake in Quest Global Services, where the deal value could be in the $800 million to $1 billion range, ET first reported in November last year.

Carlyle’s buyout funds, including Carlyle Asia Partners, have been aggressively investing in the technology and business services sector, and have invested over $35 billion of equity in over 280 deals globally as of June 30, 2023, with approximately $5.6 billion of this in Asia.

Carlyle, having been investing in India since 2000, made notable investments including SBI Life, SBI Card, HDFC, India Infoline, Delhivery, PNB Housing Finance, Piramal Pharma Limited, SeQuent Scientific and beauty care and wellness solutions provider VLCC. Carlyle invested more than $6 billion in India in over 40 transactions.

Barclays, JP Morgan, BNP Paribas, Deutsche Bank, KPMG were financial advisors in the transactions. Latham & Watkins, Clifford Chance, Trilegal, Allen & Overy and Linklaters were the legal advisors. Barclays, BNP Paribas, Citibank, Deutsche Bank, HSBC, ING, JP Morgan, Nomura, Standard Chartered Bank helped arrange financing for the transaction, added the press statement.

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