Mumbai: After spending 33 years at consumer products maker Hindustan Unilever Ltd (HUL) and its parent Unilever, Manvinder Singh Banga, popularly known as Vindi Banga, moved in June to private equity (PE) as an operating partner at Clayton, Dubilier and Rice Llc (CD&R).
PE, he says, offers a “lot more variety”. In the telephone interview from his office in London, Banga talks about his transition to PE, CD&R’s plans to enter India, and the hurdles in investing in India’s PE market. Edited excerpts:
How has the transition been so far?
The change has been very good. At one level, it is very similar to what I have been doing for many years. It has been all about how you can improve the business and how you can create more value. That’s what I have been doing for many years. It is different, in a way, that I am dealing with many more sectors. Therefore, there is a lot more variety in it.
Why did you choose to move to private equity?
I thoroughly enjoyed my time in Unilever, and especially in the last five-six years, because we were able to bring the company back. In 2004, Unilever issued a profit warning globally. As you have seen in the last four-five years, we have been able to improve the results of Unilever dramatically. In fact, the market cap of Unilever globally is up by 50%. I felt that that was a good time for me to leave Unilever and do something different. The question then was whether you join another company or do something different like private equity. But I had already worked for one of the finest companies in the world; so why would I want to join another company? Also, I got a lot of interest from private equity; and as I was exposed to it more and more, I found it a very exciting opportunity.
Another important reason for my decision was my meeting with CD&R. It’s not well known in India, but is a very unusual PE firm globally. The reason is that it truly believes you get value from business improvement, and not merely financial leverage. So this was a firm where 85% of its value creation has come from operating improvement—making businesses grow faster and deliver more profit. Secondly, they have a unique partnership model where they have financial partners and business partners like me. When a deal happens, a financial partner and a business partner both are involved in recommending a deal so that a business partner becomes the chairman of the company and sees through the deal till the value creation.
To my knowledge, I don’t see any other such model in PE today. So I saw a very clear role for a business partner for someone like me. It’s a different experience to work with people like A.G. Lafley from P&G, Fred Kindle from ABB and Jack Welch from General Electric.
(Lafley, former chairman and chief executive officer of Procter and Gamble Co.; Kindle, former president and CEO of ABB; and Welch, former chairman and CEO of General Electric Co., also work with CD&R.)
Are you already involved with any portfolio companies?
I am currently responsible for our investment in a firm called Diversey Holdings Inc., which is a global company headquartered in the US. It’s a $3 billion-plus (Rs 13,700 crore) company responsible for hygiene, cleaning and sanitation services to about 10,000 customers in the world.
Now that you are a part of CD&R, do you have any plans to enter India?
As of now, what we are doing is that we are investing in emerging markets through our portfolio companies. For example, Diversey has business in India, and it is one of the fastest growing business in the Diversey world. Last year Diversey India grew by 30%. So that is one route we are doing this through as of today. At this point in time we are evaluating whether we should invest more directly in India. The CD&R model so far has been to invest in global companies based in the US and Europe.
Globally, CD&R is known for buying carve-outs of larger firms. Do you see such opportunities for investment in India?
That will happen over time. A lot of business development in India has happened in the form of conglomerates. All over the world, as markets get more competitive, companies chose to focus on a few sectors and core businesses. So there will be opportunities for carve-outs. They will come. And that’s certainly something we will look at along with other ideas.
Hindustan Unilever’s (HUL) turnaround is finally happening. Having played a crucial role at HUL and Unilever, what are your thoughts on it?
After the transformation in the early part of the decade, HUL grew very strongly since 2004. It has done very well, and has had a good run-up of performance. It’s only in the last 12-18 months (that) it has got some competitive pressure. But these things happen in business and they are coming right back...they are well equipped to deal with competition.
What has been your biggest lesson from your corporate experience that you have taken to PE?
The key to value creation is having a very clear growth strategy—that’s the most important thing. You must have a very clear understanding of how you will grow. It’s surprising how many companies don’t have that. Second is having the right people because people make all the difference and if you have the right people, you get so much more done and so much more value creation. The third is to invest in technology. Technology is the real source of innovation. All innovation that is happening around you can be traced back to technology. Companies that invest in technology will win big time and those that don’t will not.
What according to you is the biggest hurdle when it comes to investing in India?
The main challenge is making sure that you buy at the fair price. A fair price must reward the seller, but must also provide the buyer with the opportunity to create value. It is as important to know when to do the deal as it is important to know when to walk away from it. There is a lot of competition even in Europe and the US, but there is also a degree of irrationality about some of the pricing that you see in India. There is a lot of money chasing very few deals.
What do you think of PE firms listing? There are two firms in India that have filed with the regulator to list while globally KKR and Blackstone are listed.
In my view it takes away the biggest advantage of being a PE firm. Because you are not listed, you are able to operate without being subject to the fluctuations of the market; you are able to execute your strategy. I don’t see the point in PE firms listing because how different are you from a bank then? You are not a classic PE.