Deal focus: Secondary investors support Capital Square, Basil merger

When Capital Square Partners (CSP) acquired a majority stake in India-based IT services player Indecomm Global Services in 2016, it took out positions held by WestBridge Capital, Tiger Global Management, and the International Finance Corporation. They were Indecomm’s first institutional backers, but not its first investor; that was Rajeev Srivastava.

A serial entrepreneur and relentless seed investor, Srivastava supported a string of start-ups through Basil Technology Partners (BTP), which was effectively his family office. In 2018, secondary investors NewQuest Capital Partners and Committed Advisors sought to formalise the BTP platform, creating a USD 175m fund that streamlined ownership of six companies in Srivastava’s network.

NewQuest and Committed Advisors are now participating alongside HarbourVest Partners – the largest investor – in what amounts to a secondary on a secondary entwined with a merger. The BTP portfolio will be combined with certain assets from CSP in a fund managed by an amalgamated team. About one-third of the USD 700m fund is earmarked for follow-on and new investments.

Sanjay Chakrabarty, a founder and managing partner at CSP, admits that mergers are rare and risky in private equity. But he points to a familiarity between the two teams and a dovetailing in their strategies – both exemplified, in his view, by the Indecomm transaction, where Srivastava had helped to create a business and CSP subsequently came in and bought it.

“Mergers work provided one plus one is greater than two. You must have clarity on the value creation element and why one plus one is greater than two. And investors must be clear on the people dynamic and how that can create value. Private equity is all about teams,” said Chakrabarty.

“BTP invests in earlier-stage companies, leverages entrepreneur networks, and creates value through organic and inorganic expansion. We do mid-market control deals, leveraged buyouts. Together, our span of investment is wider, which is as it should be as a sector-focused player.”

The new firm is branded CSP, and the vehicle created through the secondary transaction is called CSP Fund II. However, the BTP team is rolling into CSP with an ownership interest in the GP entity and a share of the economics. The leadership group comprises Chakrabarty and his fellow managing partners at CSP, Mukesh Sharda, and Bharat Rao, plus Srivastava and Sameer Kanwar from BTP.

The transaction, which is thought to be unique in Asia, was difficult to thrash out, one source close to the situation observed. According to Chakrabarty, the initial decision to merge came out of a conversation between Srivastava and himself that lasted no longer than five minutes.

“He said, ‘Why am I selling and walking away from value creation opportunities?’ I said, ‘Absolutely,’ and observed that we needed to grow and expand,” Chakrabarty recalled. “Then he said, ‘You have a capital markets license and we have a registered fund management company license. I think it would be easiest for us to roll into CSP.’ That was about it.”

The goal is to build a larger IT services platform, generate some value from existing and new investments, and then raise a new fund. Prior to the merger, both CSP and BTP talked to advisors about launching new funds but nothing materialised, the source added.

The existing portfolio alone is one of the largest of its kind in Asia’s technology services space and the combined team has managed more than USD 1.3bn in assets over the past decade, operating multiple companies, according to a statement. They will pursue opportunities in conventional IT services segments as well as emerging areas like software-as-a-service and data analytics.

The six assets in the BTP fund created in 2018 included Relevance Lab, Gavs Technologies, Accion Labs, Servion Global Solutions, and Apar Technologies. Since then, Gavs and Servion have been acquired by Kedaara Capital and The Everstone Group, respectively, and Accion has been largely exited following investments by TA Associates and True North.

CSP was established by Chakrabarty in 2014 after he left Columbia Capital and has largely operated on a deal-by-deal basis. Even when the firm raised a blind pool fund in 2017, the main corpus was relatively small and accompanied by sizeable pockets for co-investment. CSP has deployed more than USD 500m in equity – including co-investment – since inception.

Indecomm represented the firm’s third India IT services buyout in three years, coming on the heels of Minacs and CSS Corp. Those two transactions were joint deals with Partners Group and CX Partners, respectively. CSP subsequently acquired Aegis, another IT services player.

Minacs was sold to a trade buyer in 2016 and Indecomm went to Warburg Pincus in 2020. Aegis merged with US-listed StarTek in 2018 and CSP retains a majority stake in the combined entity. The firm also still owns CSS, having taken out Partners Group in 2021 in a transaction that featured StarTek. CSP’s contribution to the new fund will be partial exposure to CSS.

UBS Private Funds Group advised on the secondary transaction. Dechert provided legal counsel to CSP while Debevoise & Plimpton advised the investors.

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• Topics
• South Asia
• Southeast Asia
• GPs
• Secondaries
• Technology
• LPs
• M&A
• Capital Square Partners
• Basil Partners
• IT services
• India
• HarbourVest Partners
• NewQuest Capital Partners
• Committed Advisors
• Secondaries