Business processing outsourcing company Aegis, owned by a private equity group led by Capital Square Partners, is merging with US-based BPO firm StarTek Inc. in an all-stock transaction.
StarTek will issue 20.6 million shares to Capital Square in exchange for all the outstanding common stock of Aegis, the New York Stock Exchange-listed company said in a statement. Separately, Capital Square will invest $10 million in StarTek.
After the deal concludes, Singapore-based Capital Square will own about 55% of the combined entity while StarTek shareholders will hold the rest. Capital Square will also get to appoint a majority of the combined company's board of directors.
The transaction is likely to close before the July-September quarter.
The transaction comes barely months after a consortium of PE investors led by Capital Square Partners sealed a leveraged buyout of Aegis from debt-laden Essar Group in November last year.
The combination of Mumbai-based Aegis, operated by ESM Holdings Ltd, and StarTek will create a company with revenue of $700 million, the statement said.
Aegis generated revenue of $388 million and adjusted earnings before interest, tax, depreciation and amortisation of $38 million for 2017. StarTek generated revenue of $293 million, a $1.3 million net loss and $13 million in adjusted EBITDA for 2017.
“The two companies have limited overlapping infrastructure and clients--a combination which helps to enhance consistency of results and profitability by significantly reducing client concentration,” StarTek CEO Chad Carlson said. “This agreement is timely as we assess the global growth needs for many of our clients.”
Sanjay Chakrabarty and Mukesh Sharda, managing partners at Capital Square, said: “The combined company will also be able to significantly leverage automation, artificial intelligence and other technology-led innovations to deliver exponential value to customers globally.”
The top three customers of the combined company will account for less than 30% of total revenue, compared to 53% for StarTek in 2017. The combined company will have about $180 million of debt, over 50,000 employees and operations in 12 countries across five continents.
William Blair & Company acted as StarTek's financial adviser and Jenner & Block LLP acted as StarTek's legal counsel. Shearman & Sterling LLP acted as the legal counsel for Capital Square.
Aegis went through one of the rare leveraged buyout PE transactions in India when it was sold to Capital Square. The closure of that transaction came almost six months after Essar said it had agreed to sell Aegis to Capital Square to cut debt. Essar had entered the BPO business in 2004 with the acquisition of the US-based Aegis Communications Group.
Among other planned deals in the market, private equity firm Blackstone is considering an exit from BPO firm Intelenet Global Services Pvt. Ltd.
Last year, Capital Square and Indian PE firm CX Partners sold India- and US-based BPO firm The Minacs Group Inc. to US-based Synnex Corporation for $420 million (Rs 2,800 crore then).
In another transaction last year, Capital Square acquired a majority stake in Indecomm Global Services, a Bangalore-based outsourcing services provider.