Private equity investors have diverse views on their portfolio companies but usually, have a clear value-maximisation plan and agenda. Investors encounter many roadblocks as they go about achieving their margin expansion plans during the holding period. But there is now a clear shift in how investors solve these trends.
Usually, portfolio companies leverage the internal operating units of PE funds, including advisors, operating partners, and internal portfolio teams for strategic intervention, insights, and support, with a focus towards value maximisation to the portfolio company post acquisition.
However, the number of these teams seems to have reduced over time.
Presently, most private equity funds have at least one internal operating team member on a dedicated basis in charge of providing strategic oversight and value to a portfolio company. This is radically different to past trends, where two to five internal operating team members would support portfolio companies. Now, such a number of team members are assigned only to strategic interventions of high impact.
Several funds now also do not see an outright need for an operating partner for portfolio companies in the financial services, engineering, or technology sectors and do not anticipate an operating partner being on-boarded in the near future. They are, however, open to advisors with deep industry domain or functional domain expertise.
Historically, operating partners played an important role in two phases of an investment cycle: due diligence and special projects post investment. Funds are increasingly finding that generalist operating partners bring limited utility to both aspects of the cycle beyond high-level views as they do not possess the industry depth or functional expertise to go deeper towards helping funds and portfolio companies maximise value. Willy-nilly, funds tend to veer towards experts in domains specific to diligence / special projects. This is a global phenomenon and is not limited to India.
There are some exceptions, especially in financial services and technology sectors. Operating partners with deep expertise in areas like supply chain management, branding, digitisation, social media, mobile, and artificial intelligence are in demand. An instance of such demand is the recent appointment of Gregory Salinger by APAX Partners MidMarket as chief digital officer, who was hired to accelerate the fund’s value creation strategy in digital. Gregory, an entrepreneur by background, has compelling deep domain expertise and a track record of over 20 years in digital and technology.
Funds are still open to appointing advisors with deep industry or functional domain expertise to manage due diligence, deal acquisition, and post-acquisition support for CEOs and management teams in the consumer lending, peer-to-peer lending, fintech, and technology sectors.
Going forward, some funds also seem open to hiring strategic advisors with deep industry expertise, strong industry background, and track record to eventually run the portfolio company as chief executive officer on the closure of the deal. Thus, the era of generalists is coming to an end. At most, a fund will have one generalist from a consulting background. Mostly, the role of the operating partner will be delivered by external advisors and specialists. While this can differ depending on the fund’s global or in-country operating vision, culture and philosophy, most funds lean towards deep domain industry advisors as opposed to generalist operating partners.
Anuj Dhawan is founder and managing partner of global cross-border executive search firm Cognitive Talent Partners LLP.
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