Apax discussing with possible advisers IT services firm Lutech's sale, sources say

By Amy-Jo Crowley, Valentina Za and Elvira Pollina

LONDON/MILAN (Reuters) -Apax Partners has held initial talks with potential advisers and investors as it considers selling Italy's Lutech, two sources told Reuters, adding that a sale could value the IT services provider at around 1 billion euros ($1.1 billion).

Apax took control of Lutech three years ago, when it bought a majority stake from U.S. buyout group One Equity Partners in a deal that valued the Milan-based company at 500 million euros, a source told Reuters at the time.

A sale would not take place before the first quarter of 2025, said the two sources and another briefed by Apax on the matter. All three declined to be named as the talks are private.

Apax and Lutech both declined to comment.

Although the sources said no adviser had yet been selected, one said a sale mandate was expected to be awarded soon and potential advisers were informally putting forward proposals.

Lutech has grown its business supplying services such as artificial intelligence, cloud, cybersecurity, e-commerce, digital marketing and remote working solutions to companies in sectors from manufacturing to finance and fashion.

Its core profit is now above 100 million euros, two of the sources said, adding that given industry multiples of between 8 and 10 times core earnings, Lutech could be valued at around 1 billion euros.

Lutech bought the Italian business of French IT giant Atos in 2022, reaching pro-forma combined revenues of 487 million euros and a pro-forma adjusted core profit of 66 million euros, presentation slides from Lutech showed at the time.

While demand for corporate services remains healthy, higher wages have eroded profit margins in IT services, with growing competition stopping firms from passing on higher costs to clients, bankers said.

This creates incentives for mergers and acquisitions (M&A), as companies can bulk up and gain bargaining power or target larger clients, according to a McKinsey study, which said private equity firms had a growing role to play.

Lutech could be a good M&A fit for the enterprise service business of Telecom Italia (TIM), TIM Chief Executive Pietro Labriola told a closed-door meeting with investors in Milan on Wednesday, two people briefed on the matter said.

Private equity dealmaking and exits from investments have suffered in the past two years due to higher interest rates.

Consulting group Bain & Company estimates the value of companies still under private equity ownership in 2023 reached a record $3.2 trillion globally, in a challenge for funds that need to pay back investors.

Bloomberg first reported in April that Apax was reviewing options for Lutech.

($1 = 0.9303 euros)

(Reporting by Amy-Jo Crowley, Valentina Za, Elvira Pollina; Editing by Alexander Smith and Mark Potter)