According to multiple sources, the private equity firm Apax Partners is set to acquire a significant minority stake in Quest Global Services, a leading engineering outsourcing firm, after outbidding the only other firm contender, The Carlyle Group.

Binding bids were submitted last week, but TA Associates, the race's third party, did not participate.

Apax is looking to buy up to 40% of the company from its two existing investors, Advent International and Bain Capital, for $2.1 billion. The two funds own approximately 33% of the company. GIC, a Singaporean investment firm with a small 2-3% stake in the company, may also join. Some of the co-founders and management are also willing to be diluted.

Quest Global was valued at $1.8 billion in 2021 after an investor consortium comprised of home-grown PE investors ChrysCapital and True North acquired a less than 10% stake in the company.

Quest was founded in 1997 by former General Electric Co engineer Ajit Prabhu and Aravind Melligeri, and its clients include Pratt & Whitney, Rolls Royce, BMW, Airbus, and GE. However, two of its key clients, Rolls Royce and Apple, have stopped doing business with the company in recent years.

The company specialises in aerospace and defence, automotive, energy, hi-tech, healthcare, medical devices, rail, and semiconductor industries, with operations in 17 countries and 56 global delivery centres.

Ajit Prabhu remains the company's largest and controlling shareholder, owning nearly half of it.

“Investments by private equity firms are an integral part of our overall growth strategy and are part of the normal course of business. Investments and exits by private equity firms fluctuate and are prudently planned," said a Quest Global spokesperson.

Apax Partners and Advent did not respond to requests for comment. Emails sent to Carlyle and Bain Capital went unanswered.

Quest Global, based in Singapore, reported revenue of $598 million in FY21, down from $699.5 million in FY20. According to Tracxn data, it had a PAT of $52.4 million in FY21, compared to $81.2 million in FY20. Earnings before interest and taxes (EBIT) were $87.9 million in FY21, down from $107.6 million the previous year. By the end of FY22, the company's engineering team for the medical devices vertical had grown by nearly 50%.

According to industry observers, the company expects revenue of $800 million and EBITDA of $140 million in FY23, with 15-20% growth expected in FY24.

In the last 25 years, Quest has made 14 acquisitions. It began by doing mechanical work for clients - aerospace, auto designs, and so on - but then expanded into electronic design services for healthcare and medical device companies by acquiring Trivandrum-based Nest Software. Following that, it added the software aspect of product design by purchasing Exilant Technologies, which helped it secure clients such as Apple. The company even had a manufacturing division that was spun off early on to focus on technology services.

According to sources, Apax, Carlyle, and TA Associates are in the final stages of acquiring a significant minority stake in Quest Global Services. These three were chosen from non-binding offers submitted in the second round of negotiations, and the proposed deal is expected to be worth $2.3-2.5 billion to Quest.

JP Morgan and Barclays are providing investors with advice.

Warburg Pincus sold the stakes to Bain, Advent, and GIC for $350 million. In 2010, Warburg invested $75 million in Quest. Carlyle was an early-stage investor in Quest, contributing $6 million in 2003, which was later repaid by the promoters.

Apax Partners, which owns several global outsourcing companies, has been an active investor in the Indian market. In 2021, it acquired Chryscapital's digital and software services provider Infogain Co. Apax also purchased 3i Infotech's software products business in 2020 for approximately $136 million. It also has a 25% stake in Fractal Analytics, a provider of artificial intelligence and analytics solutions, after investing $200 million (Rs 1,400 crore) in 2019.

Apax was also one of the contenders for Hinduja Global Solutions' healthcare business, which was sold to Baring Private Equity Asia in 2021.

Apax Partners, which also owned half of outsourced product development firm GlobalLogic, sold its stake in the company to private equity firm Partners Group in 2018, valuing it at more than $ 2 billion. Apax invested in industry leaders such as ThoughtWorks, Zensar, and EVRY.

According to an EY report, PE/VC investments in 2022 are down 29% year on year at $54.2 billion, despite a 4.6% drop in deal volume. According to the report, the drop was caused by a sharp drop in large deals in the buyout and start-up deal segments of the pure play PE asset class.

Technology and e-commerce, which were the most popular sectors in 2021, received $5.2 billion and $5.1 billion in PE/VC investments, respectively, a 68% decrease year on year.