* To buy about 41.8 pct from Hexaware founders, General Atlantic
* Follow it up with mandatory tender offer for up to 26 percent
* Open offer price set at 135 rupees/share vs 120.75 Friday close (Recasts with company confirmation, analyst comment, deal details)
By Stephen Aldred and Indulal PM
Aug 23 (Reuters) - Baring Private Equity Asia has agreed to buy a controlling stake in Indian outsourcing service provider Hexaware Technologies Ltd for about $420 million, underscoring the potential for growth in the country's showcase information technology sector.
Baring will buy 41.8 percent in Hexaware from the founders and private equity investor General Atlantic for about $260 million. It will then have to make a mandatory tender offer for up to 26 percent for roughly $160 million.
The deal, which is subject to regulatory approvals, will be the fourth largest acquisition of an Indian company this year and fifth largest in the technology sector, according to Thomson Reuters data.
In India, buyout opportunities for private equity firms are rare and the deal highlights the surging interest in IT firms on expectations of lucrative outsourcing contracts from global corporations trying to cut costs and boost efficiency.
"The Indian IT services companies will benefit from a rise in technology spending as the U.S. economy revives," said Dipen Shah, head of private client group research at brokerage Kotak Securities.
"The sector will do well in the medium to long term. Baring taking a majority stake in Hexaware is an indication of that."
Baring will buy 27.7 percent from Hexaware founders and 14.1 percent from General Atlantic at a price of 126 rupees ($1.97) or 135 rupees a share, with the higher price payable should the private equity firm manage to acquire 50 percent or more.
The price for the tender offer to acquire the additional 26 percent stake in Hexaware has been set at 135 rupees a share, a premium of nearly 14 percent over its Thursday market price.
Hexaware develops software and provides business process outsourcing services to overseas clients. Its rivals in India's $108 billion outsourcing industry include Infosys Ltd and Tata Consultancy Services Ltd.
The Hexaware stake sale is the second major exit by founders of a mid-sized Indian information technology outsourcing company in the past two-and-a-half years, amid cut-throat competition from bigger global and local rivals.
In January 2011, U.S.-listed iGate Corp, backed by private equity firm Apax Partners, acquired the founders' and General Atlantic's stake in mid-sized outsourcer Patni Computer Systems for $1.2 billion.
The deal values Hexaware at about 8.5 times EBITDA (earnings before interest, tax, depreciation and amortisation), nearly in line with the Patni deal.
Hexaware shares rose as much as 6.5 percent on Friday before ending up 1.8 percent at 120.75 rupees, giving it a market value of about $570 million. The main Mumbai market index rose 1.2 percent.
Baring is one of the largest independent private equity firms in Asia, with over $5 billion in capital under management. In May, Baring agreed to invest $260 million in French cement maker Lafarge SA's India operations.
The private equity firm invests in Asia from its fifth fund, which at $2.46 billion when it closed in 2011, was the largest raised for Asia investments since the global financial crisis.
Indian M&A deal value in the first half of this year was $18.4 billion, up from $17.9 billion in the same period last year, with inbound deals accounting for a bigger share, Thomson Reuters data showed.
Morgan Stanley and Credit Suisse advised Hexaware founders and General Atlantic on the deal. ($1 = 64.0100 Indian rupees) (Writing by Sumeet Chatterjee; editing by Stephen Coates and Keiron Henderson)