For companies, it's human capital that makes or breaks a deal

Firms that are looking to raise capital now choose funds based on the human capital they bring to the table.

Getty Images
At a time when most global private equity and venture capital funds are lining up to invest in India and upping their game, money seems to have become just a commodity.
Mumbai: In April, when the Blackstone Group pipped rivals to acquire a majority stake in packaging company Essel Propack for $460 million, it was on the back of the rich experience of one of its operating partners, former Unilever chief operating officer Harish Manwani.

The fact that the global private equity firm owns four similar businesses globally also went in its favour in a deal that was fought neck and neck with other PE funds.

“We won Essel Propack, given the consumer expertise brought to the fore by Harish Manwani. Similarly, in Agile Electric, because of Jeff Overly (industrials) and Mphasis, due to Dave Johnson (IT services),” said Amit Dixit, the India head for Blackstone. Blackstone leverages its global network of 41 operating professionals and 45 advisers across sectors to win deals, he added.


Table1

At a time when most global private equity and venture capital funds are lining up to invest in India and upping their game, money seems to have become just a commodity. Companies that are looking to raise capital now choose funds based on the human capital they bring to the table.

Operational partners and sector experts are the reason why promoters choose a fund over another, often ignoring the highest bid, industry experts say.

ADVERTISEMENT
“If you don’t differentiate (people expertise), capital does not differentiate any more,” said Ravi Lambah, the the global head of telecom, media & technology at Singapore’s Temasek.

An operating partner is often an industry expert who helps manage the portfolio of companies for a PE fund. Private equity funds have been upping their game in India in the past five years with a steady increase in investments every six months since 2015, show data from Venture Intelligence, an M&A and PE data aggregator. So far this year, PE and VC funds have invested over $16.5 billion in India.

For large buyout and PE funds in India, the global connect they bring in and the doors that they can open across sectors and geography tilt deals in their favour. Increasingly, these funds are flying in their global sector experts once or twice to India to help portfolio firms think through their strategy.

“Even when we have a right to a board seat, we (as shareholders) may not sit on the board ourselves. We have a network of people who are best in class in that industry and our view is that the board should comprise people who can benefit the company, and therefore, benefit the shareholders,” Lambah of Temasek said.

ADVERTISEMENT
Some of the funds that have an operating team in place are Advent, Blackstone, KKR, TPG Capital, Temasek, Baring PE India, ChrysCap, Everstone, Faering Capital, Gaja Capital, True-North, Kedaara Capital, Multiples and Samara Capital.

Private equity investors, both global and domestic, have been investing in listed and unlisted Indian companies, riding their growth and making profits. While some private equity investors just provide capital, some handhold companies through their growth by helping them reorganise the business and get better talent to professionalise the management.

ADVERTISEMENT
“Capital is becoming a commodity given the quantum of surplus capital sloshing around the globe in search of limited opportunities for deployment. This is resulting in VCs bringing on board operational expertise in fields as diverse as human capital, technology, marketing and product, and using this unique capability as a lever for attracting entrepreneurs who see value in advice on these domains, helping them scale without the wheels coming off,” said TN Hari, a strategic advisor to Fundamentum Partnership and the head of HR at online grocer BigBasket.

In May this year, consumer sector-focused mid-market PE fund Lighthouse Funds appointed FMCG veteran PK Hariharan as an operating partner. The fund that has invested in companies such as Nykaa, Fabindia, Kama Ayurveda and Bikaji Foods said the promoters often needed sector experts as a sounding board. “These sector experts come in with a sea of experience and each company can leverage such experience in its own way. For promoters and senior management, these experts act as a dedicated sounding board who help them think through their strategy,” said co-founder Sean Sovak. According to him, during a highly contested deal where there are multiple bids, the human capital becomes the differentiator.

According to Hari of BigBasket, midmarket and venture capital funds find it hard to get the right talent as operational partner. The hunt for seasoned professionals is also driving business for headhunting firms that get requests from PE funds to help them hire sector experts. There are over 1,000 professionals in the private equity industry in the country in more than 140 growth and buyout funds.

“The composition of operating experts in PE funds would hardly be 5-7% of the universe. We are gradually seeing an increasing trend of enquiries among funds for senior leaders from corporates holding deep operating experience within sectors like healthcare, pharma, digital and consumer,” said Sonali Puri, partner, private equity practice, at executive search firm VitoAltor.

“The need for operating experts is building up as it complements the private equity team’s composition and differentiation with its peers, as entrepreneurs now choose with whom to engage for capital basis the overall value addition the fund provides.”
Download
The Economic Times Business News App
for the Latest News in Business, Sensex, Stock Market Updates & More.
Download
The Economic Times News App
for Quarterly Results, Latest News in ITR, Business, Share Market, Live Sensex News & More.
READ MORE
ADVERTISEMENT

READ MORE:

LOGIN & CLAIM

50 TIMESPOINTS

More from our Partners

Loading next story
Text Size:AAA
Success
This article has been saved

*

+