Private equity firm Capital Square Partners merged its portfolio company Aegis with Startek, taking a controlling stake of 55% stake in the combined US entity. The new firm will serve a host of ecommerce companies including Amazon, Flipkart and Paytm, a situation fraught with challenges, according to BPO industry executives.

In January, Startek had disclosed that Amazon has a warrant to buy up to four million Startek shares, or a fourth of over 16 million shares outstanding. Amazon has committed to outsource back-office services of around $600 million to Startek over eight years, Startek said in its disclosures to the US Securities and Exchange Commission.

“Amazon has the option to exercise that warrant over eight years. We own a majority stake in the company. This is a historic deal,” Aparup Sengupta, chairman of Aegis, told ET.

The filing, by Startek, also says that Amazon’s warrant will automatically vest and become exercisable after consummation of ‘change of control’ transactions. ET has been unable to determine whether the deal with Aegis constitutes a change of control transaction. Amazon Inc spokesperson Angie Quennell declined to comment on ET’s queries for this story.

BPO industry veterans believe that while serving competing customers is a common practice for companies, owning a stake in a back office firm which also services rivals may have its “challenges”.

“BPO companies do have processes and safeguards to keep a Chinese wall between competing customers and that naturally comes to them,’ said Swami Swaminathan, a former chief executive officer of Infosys BPO. “ A conflict of interest will persist if there is a controlling stake of a company which is in the same or similar business as some of the key customers of the BPO,” he said.

Swaminathan is of the view that the challenges will arise as “the value proposition for many of these companies is the important customer data, analytics, and buying pattern.”

“(This) can definitely bring in challenges unless there is a mechanism to take care of that,” he said. The Amazon spokesperson and Paytm declined comment on potential conflict of interest. Flipkart did not respond to queries. In the deal announced last week, Startek said it will issue Capital Square Partners 20.6 million shares of its common stock in exchange for all of Aegis’ outstanding shares.

Concurrently, the PE firm will buy an additional 833,333 shares of Startek. Startek discussed the warrant on a conference call to discuss the deal with Aegis.

“We issued warrants to Amazon, the vesting of which is tied to future Startek revenues generated from providing our services to this client with full vesting tied to future cumulative revenues of $600 million or more over a contracted time frame of eight years.

For context in 2017, revenue from Amazon was in the low-tomid single digits as a percentage of Startek's total revenue," Chad Carlson, CEO of Startek, said. Startek has been working with Amazon for two years, the CEO added. Startek reported about $293 million in revenue in 2017.

In an email response to ET, Carlson said the company would make the disclosure to the SEC in its proxy statement (that) will have more detail on the transaction, including the “impact of the transaction on the Amazon warrants”.

Ecommerce is not the largest portion of Aegis' $388 million revenue. Travel and hospitality and telecom provide the largest portions. But ecommerce has been its fastest growing business with the potential for higher margins, Aegis executives have said.