Exit or Non-exit? Case Study of Blackstone’s Stake Sale in Mphasis

This case illustrates a specific type of private equity exit where the portfolio investment is sold to another fund of the same firm. This case highlights the differing motivations of the stakeholders involved and possible conflicts of interest, which can have ethical ramifications. While secondary sale exits are common in private equity, sale within the same firm is a recent phenomenon that gives rise to more conflicts of interest. This is one of few cases that gives prime space to the personal motivations of stakeholders and ethical issues, apart from the private equity business nuances. Written as a teaching case with the primary motive to drive home certain aspects of the workings of a private equity firm, it describes an unconventional exit made by Blackstone Inc. from one of its largest private equity investments in India, Mphasis Ltd. It has been built using secondary sources, particularly company documents and announcements, besides media reports surrounding the event. We conclude that the compensation structures of the general and limited partners, respectively, come in the way of complete goal congruence and such deals lend themselves to more than the usual conflicts of interest. Unethical behaviour on the part of the general partners is especially possible, including continuous earning of fees and avoiding clawback. Ambiguity in private firms’ valuation adds to the possibility of unethical decision-making.