In a strong sign of comeback by the Indian private equity industry, the hiring of chief financial officers (CFOs) in the PE-backed portfolio companies is on the rise. Strengthening the finance function and the possibility to get listed in bourses are the major reasons attributed to the ongoing hiring.
The major names of recently hired CFOs include Anand Ramachandran who was hired by Tech Process from Barclays Capital, Rajesh Pasari who joined Netambit from Bothli Chemicals, Amit Mathur who boarded Webaroo from Tata AIG General Insurance, Giri Giridhar hired by Spandana Sphoorthy from AV Birla Retail, Satrajit Ray who was hired by Endurance Technologies from Mirc Electronics, Rajesh Ghonasgi exited Hexaware Technologies to join Persistent Systems, Joy Basu who joined iYogi from rediff.com and Naresh Rao who was hired by TVS Logistics from WNS Global.
The trigger for CFO hiring is a rather strong pipeline of Initial Public Offerings (IPOs) being lined up by the PE-backed firms. According to Sunit Mehra, Managing Partner, Hunt Partners, a global executive search firm, “the preferable experience of the CFOs include exposure to managing investor relations and leading an IPO, or in creative financial structuring and fund raising. CFOs are attracted to roles with small to medium enterprises for the reasons such as opportunity to lead a company to an IPO, desire to witness results on an immediate basis and challenges in a rapid scale-up environment.”
Thirteen PE-backed companies got listed in the first nine months of the current calender year compared to just two in the same period of 2009 and 2008. The major IPOs include that of Jubilant Foodworks (JP Morgan), Hathway Cable (Chryscapital), Nitesh Estates (Och-Ziff), Shree Ganesh Jewellery (Credit Suisse), SKS Microfinance (Sequoia), MakeMyTrip India (SAIF Partners), Gujarat Pipavav (IDFC Private Equity) and Ramky Infrastructure (IL&FS Investment Managers).
According VCCedge data, since 2005, about 35 exits took place by PE firms with an overall value of $3.2 billion through IPOs.
Echoing Mehta’s view, Vikram Uttamsingh, head of private equity advisory, KPMG India, said, “As PE firms see that their portfolio companies are getting close to listing, they like to hire CFOs who have public market company experience because the reporting requirements (like quarterly accounts) of such a company become much more robust.”
He added: “CFOs who have public market experience can bring a lot of value to portfolio companies. They have better relationships with lenders and so hopefully can strike better terms with them. They know how to take a company through the IPO process and deal with investment bankers, something that the promoter may not have knowledge about.”
The changing scenario also brings better packages to the newly appointed CFOs. Mr Mehra said, “There is a greater willingness to pay higher total cost, as compensations have moved from Rs 35-40 lakhs to Rs 50-75 lakhs. The compensation could include a significant performance linked and long term incentive element. Finance executives are willing to move at a like-to-like compensation if a significant wealth creation opportunity is presented.”
Mr Uttamsingh said one of the other key reasons of hiring a strong CFO was to strengthen the finance function of the portfolio company. “PE firms need a lot of accurate data and analysis post-investment for them to fully appreciate how the portfolio company is performing and so they need a strong CFO who can put the systems and processes in place or who can strengthen these to facilitate this.” Sometimes hiring is done to bring some independence to the finance duties as the current CFO is seen to be too close to the promoter, he added.
Sunit Mehra explained, “Occasionally, experience specifications are dependent on whether the hiring is being driven by the entrepreneur or the private equity company. The promoter emphasises on cultural fit, ability to build systems and processes, strong controllership skills and managing costs. The PE funds prefer the ability to structure the balance sheet, fund raising, providing detailed MIS and work towards improving valuations of the business.”
Padmaja Reddy, MD, Spandana Spoorthy Microfinance, India’s second-largest microfinance company, told VCCircle, ” In line with the growth, we have also been enhancing our overall management depth to take care of larger responsibilities across all functions and at multiple levels. There is very limited value addition that PEs can bring besides capital into a business like ours. Any new member at the senior management level would increase the management bandwidth.”