Blackstone Sells Pactera to Giant Chinese Conglomerate

After looking for an exit price between USD 800m and 1bn to sell off Pactera back in February 2016 as reported by Slator, the Wall Street Journal said on October 5, 2016, that private equity giant Blackstone had agreed to sell the Chinese IT outsourcing company for USD 675m to HNA EcoTech. A subsidiary of sprawling conglomerate HNA Group, HNA EcoTech is headquartered in Haikou, the capital of China’s southernmost province of Hainan.

Pactera generated annual revenues of USD 777m in 2015 according to Moody’s. The company’s Globalization Services unit, which contributes about USD 75m to group revenues, has traditionally targeted large enterprise IT accounts, going up against the likes of Lionbridge and Moravia.

The Pactera deal, according to reports, values the company at USD 930m (inclusive of debt). Although agreed upon in August, the sale has not as yet closed and is expected to do so prior to mid-2017. When it does, Blackstone, which led a consortium that paid USD 625m in March 2014 to buy Pactera, will have made over 1.5x its initial investment.

Moody’s downgraded Pactera’s debt in August 2016 due to “concerns that ongoing operational challenges will continue to pressure the company’s operating margin below the levels expected for the B1 rating category.” Moody’s analysts had expected the company’s profitability to recover from the end of 2015, but noted “Pactera has continued to face a high cost base and increasing working capital needs in China.”

“Creating a world-class conglomerate with China Dream”— corporate vision of Pactera’s future owner HNA Group

It is hard to gauge the impact the new owners will have on Pactera’s language services business. HNA Group is a giant Chinese conglomerate (aviation, real estate, financial services, tourism, etc.) with close ties to the government.

The parent company’s vision of “creating a world-class conglomerate with China Dream” echoes president Xi Jingping’s China Dream slogan, but fails to give clues as to corporate strategy.

HNA Group reported group revenues of close to RMB 190bn (USD 28.6bn) in 2015. HNA EcoTech, founded only in March 2016, said it has already established operations and R&D centers in Beijing, Haikou, Xi’an, Hong Kong, and San Francisco.

HNA EcoTech, the unit that is buying Pactera, said it offers IT, online payment, and various cloud-based services as well as VC consultation. We will continue to follow developments to find out how Pactera’s globalization business could fit into this mix.

Image: Pavillion in Sanya, Hainan Island, decorated for Lunar New Year