$700 Million Merger Between Two Asian Private Equity Firms

Two Asian private-equity firms have merged through a new $700 million continuation fund using a deal structure that has become increasingly popular in recent years. This type of deal has gained traction across the sector, as it allows investors to maintain their equity stake in a company while providing additional capital for growth.

Sanjay Chakrabarty, a partner at the new firm, has announced that Singapore-based Capital Square Partners and Basil Technology Partners have combined to form a new company, also known as Capital Square Partners. This deal is the first of its kind in the region, and will allow the new firm to deepen its technology services focused investments.

UBS Private Funds Group advised on the transaction that was structured through a so-called continuation fund mechanism, which private-equity managers use to hold a portfolio company for longer. Through this secondary process, firms strip out one or more assets from funds, giving existing investors the opportunity to either cash out or roll over their commitments into the new fund. This type of transaction is becoming increasingly popular as investors look for ways to extend their investment horizons.

The continuation fund, known as CSP Fund II, currently holds five assets and includes $250 million of fresh capital that could be used for follow-on investments in the existing portfolio or to acquire new companies, Chakrabarty said. This fund provides additional resources to support the growth of existing portfolio companies and to make new investments in promising companies.

Continuation funds have become increasingly popular with private equity firms in the US and Europe, and secondary buyers are raising capital to invest in them. According to a report from Evercore Inc., sponsor-led deals accounted for 46% of the $103 billion in secondary-market transactions in 2022, up from 33% of the $80 billion of total secondary transactions in 2019. Overall, the secondary market fell from its previous high of $134 billion in 2021 as a tough market environment hampered fundraising. In a secondary deal, an investor buys an existing interest or asset from primary fund investors.

Chakrabarty said that valuing assets is always the trickiest part of these deals. In this case, secondary investor HarbourVest Partners provided the valuation to ensure the pricing was transparent and fair. HarbourVest also made the largest commitment to the continuation fund, Chakrabarty said.

Basil and Capital Partners have teamed up to create a new firm that will focus on investing in early-stage tech companies. According to Chakrabarty, the fund is expected to make 3-4 new investments, with equity commitments ranging from $25 million to $150 million.

The company has its sights set on three primary investment themes within the tech industry. These include the infrastructure support needed to facilitate the transition to cloud-based services; security measures for said infrastructure; and data analytics services to help improve decision-making processes, as he explained.